Inflation is a situation whereby the value of money reduces which inturn leads to the increase in price of goods and services.
They are many causes of inflation ranging from individuals who cause the consumer induced inflation by bidding very high on certain rear or scarce commodity like NFT's or other limited edition items. This type of inflation happens as a result of many consumers say 10 thousand wanting to own only 10 limited edition which results to a bid whereby the highest bidder gets the item.
Firms can also induce inflation by reducing supply relative to the demand so that more monetary value will be added to the firms product , Firms also induce inflation through the creation of rear or limited number of products.
The government plays a major role because they are responsible for impacting inflation through monetary policies that enables them to print much money as possible which leads to an excessive money supply and in turn devaluation of local currencies and increase in inflation. The government also reduces interest rates to stimulate and move inflation higher and when inflation is too high the interest rates are raised to slow down the economy and bring inflation down.
POSITIVE EFFECTS OF INFLATION
Although inflation has its negative effects on the economy, it also has positive impacts such as
- more investment in digital currencies due to fear of fiat losing value
-high profit for producers because they can sell their products at higher prices.
-better investment returns because during inflation investors earn added incentive for investing in productive activities.
CRYPTO CURRENCIES AND INFLATION
Cryptocurrencies experience inflation- even bitcoin which is often referred to as "inflation resistance" but however, given that the mining reward is reduced by 50% every four year .the inflation rates are bound to decrease eventually as long as the price of Bitcoin continues to rise against Fiat currencies, Bitcoins annual inflation rates are not much of a concern for investors.
Cryptocurrencies is considered a go to for investors for the following reasons;
LIMITED MONETARY SUPPLY
UNLIKE MONEY Which can be printed anytime on demand of the government, cryptocurrencies has limited supply like bitcoin which has a limited supply of 21 million tokens so no more of the coin will ever come in circulation after the 21 million tokens have been distributed and so cannot lead to inflation through minting.
DECENTRALIZED FINANCIAL SYSTEM
Bitcoin is a DECENTRALIZED transaction currency and investment asset without central authority which works on a distributed network comprising of random nodes in different parts of the world unlike fiat currency which is regulated by the government and so allow their influence in transaction and investment for personal gain which could impact inflation risk. ETC
Cryptocurrencies wont and cant stop inflation but atleast it provides good investment opportunities for investors and will alsways be a go to for investment.