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The concept of inflation can be summarized as a long-term price increase and should not be confused with short-term price changes. For example, if half of the harvest is wasted when the rainy season comes, it is normal for the prices of fruits and vegetables to generally rise due to the decline in sales.
However, this does not properly mean that the fruit and vegetable market is experiencing permanent inflation because, in the coming season, prices will definitely fall and adapt to normal sales. The “real” inflation we need to consider is the long-term increase in prices, which will affect our purchasing power in the long run. Therefore, inflation will always be maintained, and wage increases can make inflation disappear.
What is inflation?
If you are not familiar with inflation, you may now ask yourself “Why do we need inflation?”. This is a very good question, and some economists may tell you that we don’t need it, which is actually bad for the economy. However, mainstream economic theory points out that the economy needs inflation to stimulate consumption.
The basic concept of this assumption is that money should eventually lose its value, otherwise we will retain its value forever, waiting for higher purchasing power in the future. On the contrary, almost everyone knows that one dollar tomorrow does not equal the purchasing power of one dollar today.
On the other side of demand-driven inflation, we find that cost-driven inflation is a rise in prices due to an increase in production costs and a decrease in available supply in the market. Demand-driven inflation is caused by excess money supply, while cost-driven inflation is the reason for the rise in production costs, and the rise in production costs may be the result of rising raw material costs, wages, etc.
What about inflation?
During the global economic crisis, the government will print a lot of money, which will lead to inflation, and investors will invest their money in long-term stable investments.
Historically, this stable investment refers to gold. Precious metals used to be the best way to protect investment portfolios from the deterioration of natural value, but Bitcoin is changing the game. In the current economic crisis, another long-term store of value has joined the ranks-Bitcoin.
Some form of cryptocurrency can be used to ward off inflation for exactly the same reasons as gold limited supply. Many people and even those in the crypto space often forget this, but it is worth remembering that many cryptocurrencies (most notably Bitcoin) have inherent limitations.
The 21 million Bitcoin limit means that at some point, Bitcoin should be less than the demand for them, which means that in terms of value, the price per unit should increase as the supply decreases.
In addition, the fact that Bitcoin allows investors to restrict their access to government surveillance networks means that in an era of insufficient confidence in the government, many people are shifting their investment from the U.S. dollar to cryptocurrency to avoid inflation and government stupidity behavior. In other words, it seems appropriate to compare previous crises with gold investment.
Inflation is an invisible tax, a tax levied on everyone who holds cash, and it is always inevitable. It is the real “thief” of wealth, and choosing the right investment is the best way to fight inflation.
Why can cryptocurrency not only fight inflation? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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