Do cryptocurrencies suffer from inflation?

On a financial level, a concept that is very common to hear is inflation, which in simple terms is a monetary phenomenon in which the cost of any consumer good rises in contrast to the request for the value of the currency to which it is applied. found bound. In relation to this, a very common question is wondering if cryptocurrencies are susceptible to inflation.

Unlike traditional money whose supply tends to be infinite, cryptocurrencies such as Bitcoin have a controlled production since their creation. Known as “programmed shortages”, this mechanism consists of determining from its launch an issuance route whose beginning and end is stipulated, and after which the cryptocurrency will cease to be produced permanently.

In a traditional scenario, a centralized financial organization may take the step of increasing the production of its currency, thereby decreasing its value. This is in essence the cause of inflation.

Does inflation affect cryptocurrencies?

Unlike traditional money whose supply tends to be infinite, cryptocurrencies such as Bitcoin have a controlled production since their creation. Known as “programmed shortage” this mechanism consists in determining from its launch an issuance route whose start and end are stipulated, and after which the cryptocurrency will cease to be produced permanently.

Taking the example of how Bitcoin was built to avoid inflation, its production tends to a maximum of 21 million units, and it will be until 2140 that new BTC will stop being created. Since its creation, the production of this cryptocurrency has decreased by half every 4 years. Currently the amount of bitcoins created daily is 900 and it will be until 2024 that its production will be reduced by half.

Consequently, the phenomenon of supply and demand develops in the opposite way to that caused by inflation, that is to say that while supply is gradually reduced, demand increases. In other words: Bitcoin inflation is gradually decreasing.

The Bitcoin inflation rate currently stands at 1.8% per year, and thanks to the programmed shortage and halving, its average tends to gradually decrease.

If we compare the inflation of countries like Chile with 6.3% or Colombia 4.8% or even the United States with 6.8% with BTC, it is very easy to conclude that in effect, the best-priced cryptocurrencies are designed to avoid inflation.