How Cryptocurrencies Will Affect The Future of Inflation



When a person lives in a society, that individual's economic life is to a large extent controlled by the monetary system of that society. Inflation, deflation, and recession all greatly affect the person's personal economy. As a result, understanding how these things work in one's own society is very important. This article will explore how cryptocurrencies (also known as "cryptos") will influence the future of inflation.


In order for you to understand how cryptocurrencies will affect inflation, one must first have a knowledge of what factors decide an economy's inflation rate. Many people believe that inflation only consists of rising prices within their country; however, inflation is actually the rate at which prices of goods and services are increasing within an economy. This means that as a whole in their country's economy, prices are rising while wages stay the same. The main causes of inflation are the supply of money (total currency available compared to demand; if there is more than enough people want, prices will increase), the demand for money (how much an individual desires to hold onto their money; if there is a lack of goods and services, people will spend more on them than they would without inflation occurring), and the velocity of money (the number of times currency is exchanged or spent within a given time; if there are fewer transactions taking place, supply and demand will be out of sync).


As cryptocurrencies gain in usage and more people are introduced to them, the main economic factor that will have an effect on inflation is velocity. Because they tend to fluctuate greatly already and transactions take place at a very fast pace, it may be possible for cryptocurrency users to spend their money before its value decreases too much. This would bring the velocity of money to an extremely high level which would cause inflation, but in this case, it would be a good thing for anyone holding onto cryptocurrency because their worth would increase over time. For example, if you spend $100 USD on a $105 USD item today and the price increases 10% tomorrow (which is a rate of inflation), you lose $100 USD in value. However, if you spent your $100 USD on cryptocurrency and it increased 10% the next day AND YOU SPENT YOUR COINS, then you would have bought the same item for only $90.50 USD (even though its initial worth is still only $100). This occurs due to the fact that the demand for cryptocurrencies (like bitcoin) will increase faster than its supply; therefore, causing an inflation in prices but a deflation of how much your currency is worth.


The second economic factor that affects inflation would be demand. Because cryptocurrencies are not controlled by banks or governments, they cannot arbitrarily print more money to keep up with demand. This means that cryptocurrencies are constrained by growth in mining, which means the supply cannot increase to meet demand and will actually decrease over time (as more people become miners or drop out of mining altogether). Since cryptocurrency mining fees represent less than 1% of total market value for bitcoin today, this means that when more people around the world want to own cryptocurrency, the price of bitcoin and other cryptocurrencies will increase due to this increased demand while mining fees remain stable or decrease. If you compare this to traditional fiat currencies, they are able to increase their supply with relative ease; however, when a government prints more money, it decreases that currency's value because there is now less total demand for it.


The third and final factor that affects inflation is supply. Since the total number of bitcoins has been limited by its code to never exceed 21 million, as more people buy these coins, demand increases but the supply remains the same. This means that you'd have to spend more bitcoin money on goods or services today than you would yesterday because it is worth more today than it was yesterday. This increase in demand with a static supply will always lead to higher prices for the cryptocurrency world over traditional fiat currencies because there are no artificial limits imposed by banks or governments (just like how a company can produce as many goods as it wants but won't be able to sell them if nobody is willing to buy them).


With all three of these factors combined (velocity, demand, and supply), it is clear that cryptocurrencies are able to affect inflation in a positive manner unlike traditional fiat currencies. However, there are some caveats to this statement: If cryptocurrency prices remain more stable than fiat currencies over the long-term (which is unlikely due to the volatility of cryptocurrencies), then there won't be a significant change to inflation in the future. If cryptocurrencies begin losing popularity, demand will decrease and so will prices; however, because mining fees (which represent less than 1% of total market value) will remain stable or decrease with increased mining efficiency, this would not significantly affect inflation either way. Finally, if cryptocurrencies completely lose their value in the next few years due to public disinterest or hacking problems, then it is possible that fiat currency inflation would increase drastically because there would be no effective limit on government/banking control over money supplies. However, this possibility seems unlikely given that a large number of banks around the world are investing in blockchain technology as we speak.


The end result of this is that cryptocurrencies will not have a large effect on the future of inflation because there are simply too many other factors that far outweigh demand and supply in terms of affecting inflation rates ( political fiscal policies, natural disasters, etc ). In fact, it could be argued that cryptocurrencies would actually decrease future inflation rates because they provide a decentralized solution that takes banking and government control out of the process. However, it is less likely that cryptocurrencies will decrease future inflation rates than it is that fiat currencies will decrease inflation in comparison to cryptocurrencies because there are so many more factors involved in affecting inflation over an extended time period.


Overall, the future of inflation and cryptocurrencies looks bright. While it is true that cryptocurrency prices will not decrease future inflation rates by any significant amount, they do provide a better medium for storing value than fiat currencies in the long-term because of their supply limitations. Additionally, with so many banks around the world investing in blockchain technology, we could see more efficient central bank cryptocurrencies in the future that can store value faster and provide better international transactions than traditional currencies such as the US dollar. If this becomes reality, then it is possible that central bank cryptocurrencies could replace traditional fiat currencies around the world in the next 50 years which would have a significantly negative effect on inflation rates for our society because there will be significantly less control over money supplies (just like how there is now a significantly higher level of control over money supplies through fiat currencies compared to cryptocurrencies).


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