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Bitcoin inflation Vs inflation

Crypto influencers and companies use “inflation” incorrectly. “Inflation” has 2 means; the physical meaning and the economic meaning.
– The physical meaning is the increase in size of an object.
– The economic meaning is the decrease in purchasing power of a currency.

Bitcoin will become deflationary (physical term) one day, which means with time total accessible supply of bitcoin will decrease. But this is will be true only when;

“`
number of lost bitcoins > number of mined bitcoins
“`

We can assume this to be true after 24 years perhaps when mining reward will be too low. But at the current time bitcoin is probably inflationary (physical term).

Bitcoin‘s inflation (economic term) is a function of demand and supply. It is not a function of its reduced mining rewards because that does not say anything about demand. Whenever the price of bitcoin vs USD drops we can safely say the bitcoin has inflated (economic term). Over a period of last 5 years yes bitcoin has been highly deflationary (economic term). It might continue to be deflationary (economic term) for the next 100 years. Which means Bitcoin might continue to rise in value against USD.

I think no one should fool people to say that Bitcoin is deflationary (economic term) just because of limited supply. Limited supply tell us nothing about the demand. Someone’s shitcoin is limited in supply too but they can’t surely sell it for an ever increasing price. There has to be demand. People who are not very savvy get pulled into this limited supply shilling to buy shitcoins.

Crypto influencers use the physical and economic meaning of inflation very loosely to fit their narrative. Perhaps they themselves do not know the meaning of inflation which is very dangerous for the community or they are shilling which is bad too.

I think we as a community should get this clarified by the author when this happens. The new Coinbase [article](https://www.coinbase.com/learn/crypto-basics/what-is-inflation) is an example of confusing usage of inflation.



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7 Comments

  1. I follow some books that calls “expansion of the monetary supply” vs “increase in prices”.

    I still find it confusing to call a inflation as “economic inflation”, but calling it “inflation as prices inflation” would be clearer in my opinion. I’m not sure if “physical inflation” is a good term for the future as well, since bitcoin units are not physical for example..

  2. “Whenever the price of bitcoin vs USD drops we can safely say the bitcoin has inflated (economic term).”

    Right. USD didn’t deflate because BTC is _the_ currency πŸ˜‰

What do you think?

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