Scarcity creates inflation too

We have to understand that many of what we know about inflation and how we view money, in general terms, is flawed.

The Bitcoin community for instance sees “money(fiat)” as a sort of fake money and BTC to be what's real. The reality is that both are as real as we believe them to be.

I mean, I can understand why they'd think fiat is fake, I for one think the system is a fraud thanks to its governance and distribution flaw.

But still, even Bitcoin doesn't exactly completely detach from that flaw, it is just a couple layers better positioned.

There's not really a perfect term of description nor a perfect system of management for money, there's just a process of many layers, where some are better than others.

By this, I mean crypto and blockchain technology. Not because it's new and shiny, but because it's factually positioned to be a better management layer.

What even is Inflation?

Inflation is the rate at which the general level of prices for goods and services increases over time, reducing the purchasing power of money. It is typically measured by indices such as the Consumer Price Index (CPI) or the Producer Price Index (PPI). Inflation can result from factors like increased demand, rising production costs, or excessive money supply expansion. Moderate inflation is considered normal in a growing economy, while excessive inflation can lead to economic instability.

Central banks, such as the Federal Reserve, manage inflation through monetary policies, including interest rate adjustments and money supply control. — GPT.

In the cryptocurrency ecosystem, when most people hear inflation, they think about “money printing” but evidently, that's just a piece of it. Inflation can occur without new money being printed, initially.

Generally, the term “inflation” is an extension of the word “inflate” which means to expand or increase.

By this reality, stock shares being increased is inflation, real estate development increase is inflation, no? Maybe we simply are the ones misunderstanding the systems we function within?

Inflation vs Emission: scarcity and speculation births the former

Within the decentralized finance ecosystem, we tend to find these words used interchangeable but should there be?

I can see why anyone would think they mean the same thing, but at the same time, it shouldn't be applied in the sense it is.

Bitcoin block rewards to miners are emissions, not inflation because they don't inherently hold value until valued by the market.

Inflation, when it comes down to economics, is determined by the market. Money printing is not inflation, it's similar to token emissions, it's merely supply increase.

What even does this tell us about everything we've believed about inflation?

Well, from the way I view it, inflation is not a problem if it falls within “fair valuation” and not merely speculation. This is to say that the reason our financial system is largely broken is because we've overvalued many products and services, essentially increasing our exposure to bad debt.

Our money is debt essentially because we're in a contract, sort of promise to always accept it for goods and services. So when we overvalue everything, we essentially devalue our money and the only people that benefit are those that hold what we've overvalued as opposed to holding our debt(money).

Where does scarcity come into all this? That's a good question and it's really just the devil in the details.

A scarce asset, like Bitcoin, that is perceived or speculated to be “valuable” will often be overpriced even if it is economically not useful at any point.

Think about how silver has more economic usefulness but gold is more favored simply because silver is more available and gold is scarce. Essentially, we're inclined to devalue(create inflation) our money atop of scarce and/or speculatively perceived to be “luxury in essence” assets.

Posted Using INLEO