Are you wondering how Bitcoin solves inflation? If so, here is a complete guide on how this digital asset solves inflation.
Inflation is a sustained upward trend in the price of goods and services in an economy. Satoshi Nakamoto created Bitcoin to defy the harm of inflation. This digital currency can help you hedge against inflation. Fiat money decreases in value due to central bank money printing. On the contrary, this virtual asset has a fixed supply of 21 million Bitcoins.
Inflation is good as it can boost the economy and create new jobs. Generally, low inflation stimulates spending, investment, and borrowing, which are essential for healthy economic growth. Furthermore, when inflation gets out of control, it leads to hyperinflation, an increase in the price of goods and services, and wages stagnate. Eventually, currency purchase power decreases, and living costs get expensive.
Either way, higher inflation erodes the value of the money you have saved, while lower inflation slows the economy. Since inflation has constantly threatened the value stored in fiat, people often protect themselves by investing in assets that maintain their weight over time. Here is how this digital currency can solve inflation.
Institutional Growth of the Asset Class
This electronic currency set many records in 2021, including the first time the asset class has hit $ 1trillion in value. As institutions and private and public corporations consider this asset class for allocation, the demand for this virtual asset will continue to increase. Moreover, if companies transition a percentage of their gold holdings into this digital money as an inflation hedge, there could be an increase in this digital currency demand.
This digital currency's increased demand and fixed supply will increase Bitcoin prices. Governments like El Salvador and the Central African Republic have legalized this virtual asset, increasing Bitcoin demand.
Bitcoin's Technology Continues to Grow
This virtual currency has an inbuilt infrastructure known as blockchain technology, a public distributed ledger. This ledger records transactions transparently and anonymously. More Bitcoin development is occurring every day, and an increased number of users interact with the protocol. The trend of having this virtual asset continuously grow is not stopping. For instance, Twitter allows its users to tip content creators with this virtual currency.
This virtual asset has a defined supply of 21million, and there cannot be inflation to this value. The stable supply cap ensures that people with these virtual asset holdings understand their overall currency ownership. Also, if you are worried about not being able to purchase an entire unit of this virtual currency, Bitcoin is divisible by one million. Therefore, buying a fractional amount of this digital currency is pretty straightforward. Also, there are genuine exchanges like Bitcoin Loophole you can use to purchase Bitcoin.
Fiat currency suffers from additional money printing. On the contrary, this electronic currency cannot suffer other money printing because it has a limited supply. Additionally, limited supply ensures that Bitcoin holders don't have diminishing ownership of the protocol.
Decentralized Financial System
Governments regulate the usage of conventional currencies in their economies. On the other hand, this virtual asset is entirely decentralized and lacks central authority. This virtual currency works on a distributed network comprising random nodes worldwide.
These digital money transactions do not involve intermediaries such as banks. Instead, this virtual asset operates on a consensus basis giving its users collective ownership of the network.
The price of this digital currency swings upwards and downwards based on public perceptions. For example, positive sentiments about this digital money strengthen investors' confidence in the asset, while negative comments cause a price decrease.
The Bottom Line
Inflation is an important economic concept that can be good or bad. Over the thirteen years that this digital money has been around, it has shown that it can play a role against inflation.