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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 525825 times)
errazorah
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September 17, 2018, 01:22:44 PM
 #1181

Increasing the money supply faster than the growth in real output will cause inflation. The reason is that there is more money chasing the same number of goods. Therefore, the increase in monetary demand causes firms to put up prices. If the money supply increases at the same rate as real output, then prices will stay the same.
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September 17, 2018, 02:09:29 PM
 #1182

In general money supply is  undertaken by Central bank. But in the Case of Bitcoin who are responsible for increase and decrease of the supply of Bitcoin. 
msbtrooper
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September 20, 2018, 01:43:02 PM
 #1183

An area dedicated to discussing the differences of these two terms and the theories supporting them.

I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.

Pulled from a discussion in Wall Observer



Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.

Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.

So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.

Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!

Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.



Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).

MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.

MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.

This leads me to the last section.



What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.

What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.

What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).

What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.


Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.


We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.

Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.

Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...

Happy trading! Wink

The keynesian school of thought postulated that money supply has complex and great influence on inflation. Keynes himself proposed that inflation was caused in a number of different ways:

1) DEMAND OUTSTRIPPING SUPPLY: This further confirm the law of demand and supply which show an inverse relationship between price and supply and a positive relationship between demand and price.

2) INFLATION BEING BUILT IN A SYSTEM: Keynes acknowledge this because in most developing economies, this is done with the machinery of government just to make some people rich.

3) HIGHER COST PUSHING INFLATION HIGHER: Keynes also talked about higher cost incurred in production which can cause inflation to also go higher. A good example of this is multiple taxes which can jark up the price of the goods another one is high prices of raw materials.

The Keynesian school of taught identified lots of reasons which i have highlighted some of it here. The school of taught is one of those school of taught in Economics which has helped in the development of economics to this level it is today and as such you can not talk on economics without mentioning The Keynesian School.

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dharavikala
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September 21, 2018, 12:46:33 PM
 #1184

On the off chance that quantum processing can really break the hash capacities and crypto which are right now utilized in the blockchain, bitcoin will develop just by changing to new crypto and hash works that are not broken by quantum registering.

The bitcoin convention permits the blockchain to utilize any capacity. Each exchange incorporates the directions on what calculations were utilized.
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September 22, 2018, 11:56:35 AM
 #1185

In inflationary framework like we have today it's recommended that 2% swelling is "solid" for the economy. I can't envision if expansion was at least 10%. Would someone be able to figure or clarify what % of collapse will be with Bitcoin money once it balances out? I think If it's moderately low around 2% flattening then it's reasonable and economy will have sufficient energy to flourish. In the event that flattening will be at considerably higher rate then economy will genuinely hurt in light of the fact that nobody will need purchase anything and it will be unbeneficial for organizations to deliver products on the grounds that from the minute it's created to get to racks for clients the merchandise would diminish in value dramatically. Hope somebody can disclose this to me.
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September 22, 2018, 08:34:34 PM
 #1186

In 2001, the output of widgets increases 20%. The Money supply increases 20%. Therefore, the average price of a widget stays at £0.50 (zero inflation) In 2002, the output of widgets increases 16.6% and money supply also increases 16.6%. Prices stay the same and the inflation rate is 0% However, in 2003, the output of widgets increases 14% but the money supply increases 42%. WIth the money supply increasing faster than output, there is a rise in nominal demand. In response to this rise in demand, firms put up prices and we get inflation.
mmacdonell
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September 24, 2018, 08:29:26 PM
 #1187

US Confederacy 1962-65. During the Civil war, the Confederacy of southern states found itself short of finance (it could only raise 46% of the cost of war from taxes and bonds) so it increased the printing of money to pay for materials and soldiers. However, with economic output falling, this caused inflation of 700% in the first two years of war and reaching a peak of over 5000% by the end.
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September 25, 2018, 02:13:27 PM
 #1188

I think bitcoin is currency, by currency i mean its like value, not like cash. It is a commodity. When you exchange some commodity worth x dollar with a bank note of x dollar then you are actually exchanging the commodity's worth. Inflation deflation is still maintained by amount of cash flow by government. Fiat money applies in term of cash and not for coins. Because metal is limited. You cannot make as much coins as you want. Bitcoin is also a value it cannot control inflation or deflation. Whatever inflation deflation we will observe will depend on its demand.

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September 27, 2018, 08:04:08 AM
 #1189

In general, if you think that the price of bitcoin should constantly increase, that bitcoin is limited, but what we see on the market seems to me to be connected with the fact that people who are engaged in mining just sell their coins, so the price of bitcoin does not grow!

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SuicidalDemon69
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September 27, 2018, 01:36:13 PM
 #1190

In the beginning, Cryptocurrency such as bitcoin has no value at all. The price of Bitcoin increased because of the exchanges built to FIAT to cryptocurrency exchanges. The bitcoin has a value because of this trading. The bitcoin value keep increasing because there are more people keep buying this currency.

Why they buy? This is the most important question I've been asking for. Why they buy a coin that has no value at all in the first place. The thing will have a value once someone or a society believes that thing has a value. That how is our society works.
 
Almost every year, more and more exchanges have been established resulting to increase the price of the BITCOIN. The main use case of this currency is for fast peer to peer transaction and much lesser fees unlike fiat currency. The bitcoin price also increase because of lots of new altcoins which will be valued in trading through bitcoin. Because of this technology through being anonymous, you're trading with high risk. Lot's of scams happening every seconds.

On the other side, it helps other people to earn. Especially me. This cryptocurrency and other altcoins, I've earned a lot because of this. The inflation of bitcoin will help few of us to earn through trading.

One thing is for sure is that the price of BITCOIN in the future will keep increasing as long as there are more and more exchanges will be established. Bitcoin is the father of cryptocurrency, I believe also on other popular coins such as LTC, ETH and BCH. But the other coin which is good for small trading is  DOGE coin, which is widely spread on lots of popular exchanges.

The cryptocurrency will only be diminished its value when there is no technology.

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September 29, 2018, 10:05:47 AM
 #1191

On the off chance that quantum processing can really break the hash capacities and crypto which are as of now utilized in the blockchain, bitcoin will develop basically by changing to new crypto and hash works that are not broken by quantum figuring. The bitcoin convention permits the blockchain to utilize any capacity. Each exchange incorporates the directions on what calculations were utilized.
VEIL-Project
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September 30, 2018, 07:06:07 PM
 #1192

What has been said in this thread, if anything, about coins who have no fixed cap, and thus unending mining designed?

What has been said in this thread, if anything, about coins who have no fixed cap, and thus unending mining designed?

The reason why there are different coin emission schemes, is that there are different ways to approach the problems of incentivizing the network and network spam. You need to somehow financially incentivize people to support the network, or the network will be weak. You need some kind of transaction fees to discourage network spam, otherwise the network will be taken down with spam.

Different coins handle coin emission in different ways:
Some coins have hard caps and intend to rely only on trading fees to incentivize the network.
Some have very modest tail emission indefinitely to incentivize the network.
Some have more sizable emission indefinitely to incentivize the network and for other purposes, i.e. funding budget system so that the project can be continually funded many years from now.

But whether or not a currency has a fixed hard cap is not the most important consideration when judging whether its economics are sound. I would consider these questions more important, and they can all be achieved (or not achieved) with the 3 models above:

1. Will the network be adequately incentivized while at the same time not cost users too much in fees?

The guarantee of a hard cap and the network being entirely incentivized by transaction fees may sound nice at first, but it can make it harder to balance incentivizing a robust and decentralized network, and having low enough fees that people will use it as a currency.

By having tail emission, you can more easily incentivize miners or stakers regardless of how much use the currency has, and allow for lower fees by subsidizing it with constant coin supply inflation - a good thing for encouraging everyday use, but possibly a bad thing for encouraging long term depending on the answer to the next question.

2. Where do the block rewards and fees go?

Some coins give block rewards and fees to miners (or split between miners and stakers), and paying miners block rewards is basically an inflation-subsidy burdened by holders who have their coin value reduced by inflation. This is when long term holding is discouraged, as long term holders can suffer multi-digit % loss in value attributable to inflation over years or decades (depending on coin).

Some coins give block rewards and fees to holders who stake (or burn fees for deflation and to prevent transaction churning for increasing fees). This is inflation-subsidy as well, but it is burdened by non-stakers, whether because they choose not to or they have insufficient balance to stake. Coins that allow anyone to stake fairly, allow all holders to counteract inflation by contributing to the network. Paying network incentive to holders themselves makes it easier to achieve a good balance between incentivizing the network and low inflation/fees.

3. If there are additional sources of coin emission, do they make sense?

Some coins are funded by donations, some by ICO, and some with built-in budget systems. Coins with built-in budget systems continually mint new coins to make sure R&D, marketing, support, etc can be funded.

Is the budget being used transparently? Cost-effectively? If not, it is possible that the budget is controlled by incompetent rent-seekers, in which case the budget is a cost that is effectively inflation-subsidized by all of the coin holders.
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October 01, 2018, 06:57:00 AM
 #1193

Bitcoin and cryptocurrencies, unlike other stores of value, operate and exist outside of both of these, so in one day soon, they can offer a long-term solution to a problem that has proven unreachable by generations of economists for a long period of time.
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October 01, 2018, 02:13:03 PM
 #1194

Eventually Central Governments are going to create their own electronic currencies. That alone will increase GDP by a few points
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October 02, 2018, 07:29:56 PM
 #1195

German Hyperinflation 1923. In the aftermath of the First World War, Germany faced high reparation payments. To meet these demands, the government started printing more money – so that firms could continue to pay workers. This led to an explosion in the inflation rate. By the end of 1923, printing money had got out of hand, and the economy experienced hyperinflation.
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October 04, 2018, 07:45:44 AM
 #1196

Ideally one day I will see more about this. It's a great deal to take in and I simply got some answers concerning Litecoin the previous evening, which adds to the heap. For what reason didn't I give careful consideration when it went on economics....that's right side, I went to state funded school, it wouldn't have made a difference. Lips fixed Marking for later prowling, calls....loudly.
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October 04, 2018, 12:10:33 PM
 #1197

Any currency is subject to inflation. But it seems to me that Bitcoin will not live to see it. For this, it is necessary for it to balance supply and demand. After that, due to the added value of the product, it may undergo inflationary processes. However, this is unlikely for many reasons. First you need to measure the gross product in bitcoins and it should be the main currency in the world. But now they are beginning to climb many of the disadvantages of the cue ball, which the altcoins are trying to solve. The growth of his course is largely due not to trade, but to the growth of his popularity and attitude towards him as a means of depositing money. As it once was with the Swiss franc. And, remember what the Swiss central bank did then - it tied the franc to the euro in order to bring down the bloated rate. Otherwise, the franc would burst like a soap bubble. But the cue ball does not have a regulator. Because one day it may collapse. But, based on current trends, I will assume that this will be relatively mild, if the Altcoins devoid of the disadvantages of Bitcoin pick up the baton.
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October 07, 2018, 05:51:51 AM
 #1198

Sometimes the money supply is hard to calculate and is constantly changing. Large increases in the money supply are often just due to changes in the way people hold money. For example, an increase in credit card use may cause an increase in th broad money supply M4.
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October 07, 2018, 01:52:49 PM
 #1199

Yes!
One of the main global problems is the uncontrolled printing of fiat currencies.
This gives rise to the power of the elected elite.
This creates an opportunity for war.
This contributes to the depreciation of the real income of ordinary people. Inflation.
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October 08, 2018, 04:57:30 PM
 #1200

Economically, inflation occurs as a result of too much high volume of money supply in the circulation which result to persistent increase in price level while deflation is the persistent decrease in the price level as a result of less volume of money supply.
  In the crypto world, price deflation is the term used to describe the prices of goods and services as they decrease because the value of bitcoin goes up. While price inflation occurs when prices of good and services increase because the value of bitcoin goes down. There is opposite relationship of price and value in regard to goods and services,and bitcoin when dealing with price inflation or price deflation.
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