Welcome to this brief overview of what the terms inflationary and deflationary mean... primarily in the crypto world! If you are ever reading up about a cryptocurrency, you are bound to see either "inflationary" or "deflationary" in their description of the coin or token. Believe it or not, this can actually help play a role in the importance, or demand, of the coin/token and help you paint a picture of how it will either grow, fall, or remain the same.
Let's take a look at what these terms mean and how it relates to your coins or tokens!
I am not sponsored by anyone or anything mentioned in this article.
This is not financial advice. I am not a financial advisor.
Please do your own research before making any decisions before investing.
This article is meant for educational purposes only.
You hear a lot about inflation with fiat currencies (USD, Euro, GBP, etc). Inflation is the decline in monetary value over time. Seen mainly in corrupt government systems, inflation of currency can leave people stranded with all their [now] worthless money. Governments have the ability to literally print money out of thin air to distribute out into the economy. This causes the purchasing power of the currency to decline, and goods and services will raise their prices to meet this new demand. Your $5 back in the early 1900s was worth way more than $5 in today's market. In my opinion, there's no real value to inflation as it decreases in value. Kind of makes sense, right?
Deflationary coins and tokens are found all throughout the crypto market. Bitcoin is coined (lol) as deflationary, as there is a set limit on how many coins can be mined and produced. Once that cap is reached, Bitcoin will be harder to obtain as stakeholders own a piece of the world's network of Bitcoin. This will cause stakeholders to have absolute power on the value of Bitcoin and, if no one is selling off any of their stash, the price will skyrocket. This is set in place to combat the decline in fiat currency value over time and diminish corruption of money being printed for consumers on a yearly, growing basis.
Deflationary protocol has many advantages in the crypto market! It can increase the value of the coin/token over time, as it gets harder and harder to obtain. This maximizes profits for stakeholders in the long-run, as the price should just continue to gradually increase. It also ensures that all coins/tokens will be mined and held at some point, avoiding unused or unsold coins/tokens floating around in the market, longing for a buyer. Some crypto foundations or communities burn their tokens alongside every transaction and host "burn events" to decrease the total supply of the circulating crypto. Some may also hold their tokens in a locked contract, also decreasing the circulating supply. The higher amount of people trading, mining, and holding their particular crypto, the more it should rise over time. Of course, this is all speculation at the end of the day!
I hope this brief overview article helped you wrap your head around the terms inflationary and deflationary a little bit. If this helps at least one person, I'll be happy! There are many different definitions of inflation and deflation, and it pretty much all depends on who you ask. This was my take on it and comparing it to crypto, mainly Bitcoin, as everyone knows what Bitcoin is nowadays!
Do you have any favorite deflationary tokens you like to hold on to?
Let me know in the comments down below!
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