One of the biggest issues we face with the current financial system is inflation. As more money is printed, particularly in this new COVID-19 era, the value and purchasing power of our money decreases. Could Bitcoin and cryptocurrency be the solution to this problem?
WHAT IS INFLATION?
Inflation refers to the rising prices of goods and services over a period of time, commonly referred to as “the rising cost of living.” As the price of goods and services rise, the purchasing power for consumers decreases. This has the effect of devaluing a particular currency.
For example, a single dollar 100 years ago would now be the equivalent of $12.91 - a 1190.58% increase!
This virtually means that your money is losing its value over time.
Hyperinflation occurs when the monthly inflation of a currency is higher than 50%. In recent years, we’ve seen this occur many times. In Venezuela, hyperinflation reportedly caused a 130,060% inflation in 2018. In Lebanon, the consumer price inflation rate rose to an all-time high of 145.8% year-on-year in December. The largest hyperinflation known in history was a massive 13,600,000,000,000,000% monthly inflation rate, leading to prices being doubled every 15.6 hours!
Hyperinflation has a devastating effect on both the economy and the country’s people. Even the most basic food can become incredibly expensive and people’s entire savings can suddenly become worthless.
BITCOIN AS A SOLUTION?
Bitcoin and other cryptocurrencies could very well be the solution to inflation!
Fiat money can and is printed without end, which leads to its value and purchasing power decreasing, as there is then a larger supply of it. In contrast, Bitcoin has a hard-coded maximum supply of 21 million Bitcoins; once 21 million Bitcoins exist, no new ones will ever be created. The amount of Bitcoins created is also set to decrease roughly every four years in an event known as the Bitcoin Halving. When this occurs, the amount of newly generated Bitcoin is reduced by 50%, making it incredibly scarce. As currencies work through supply and demand, the decreasing supply of Bitcoin is more likely to increase its value as the demand continues to grow, unlike traditional fiat currencies that are decreasing in value and increasing in supply.
Bitcoin has the opportunity to help millions around the world who currently face the heartbreaking effects of hyperinflation. Carlos Hernandez is one of many people who turned to Bitcoin and cryptocurrency during the Venezuelan crisis. He explained in a New York Times article how cryptocurrencies saved his family.
While traditional fiat money like the US dollar is losing its value due to inflation, Bitcoin continues to be the best performing asset of the decade. And what's more, with cryptocurrency you can own your hard-earned money rather than leaving it to the mercy of a financial institution!