Is Bitcoin a Deflationary Currency

Are you wondering whether Bitcoin is a deflationary currency? If so, here’s what you should know about this virtual currency.

 There are two groups of currencies out there, inflationary and deflationary. Inflationary currencies have no limit to how many units can be in circulation. On the other hand, deflationary currencies have a maximum supply limit.

With central banks printing more units of inflationary currencies, their buying power decreases. However, the value of deflationary currencies increases as they become scarcer. Fiat currencies fall in the category of inflator currency, while Bitcoin is deflationary. Platforms like allow individuals and enterprises to buy this crypto asset with fiat money. And the coins you purchase on such a platform will be worth more some years from now.

 Why Bitcoin is a Deflationary Currency

Bitcoins algorithms determine the maximum supply it can ever hit in the market. No government or central authority regulates or controls Bitcoin since it’s decentralized. After hitting the 21 million coins’ limit, the supply of the crypto will stop. Due to this, the mining reward keeps reducing with every halving event. Therefore, Bitcoin is deflationary due to the declining supply and its protocol limiting the number of coins that the world can have. Here are the primary characteristics that make Bitcoin a deflationary currency.

 Limited Supply

Some people compare Bitcoin to naturally occurring gold because its code makes it a rare commodity and a store of value that users can trade and divide. Bitcoin increases in value because of the limited supply and the halving process.

These elements limit the total number of digital coins circulating in the world while adjusting the coin release every four years. Also, the underlying technology for this virtual currency gives this digital currency trust by enhancing trust. Ideally, users can monitor Bitcoin transactions. Unlike with government money, that is hard to watch the circulation. Bitcoin’s underlying technology and limited supply make it deflationary for most people.

How Bitcoin Network Functions 

Energy consumption is another factor that defines Bitcoin as a deflationary currency. Miners or nodes have the reason to maintain the network for the reward they receive for their effort in validating Bitcoin transactions. The Bitcoin network compensates them for the energy, computational work, and time they spend confirming transactions.

If there is no compensation for this work, miners or nodes could stop working on the network, affecting the Bitcoin system’s stability and transaction validation. Bitcoin is deflationary because it doesn’t depend on a central authority to function, confirm, or validate transactions.

Increasing Value 

If you buy Bitcoins today, send them to your crypto wallet and put your private key away safely for four or eight years, your coins will buy you more than they purchase today. That’s because their value will increase. Many crypto experts recommend buying and holding Bitcoins instead of spending them right away.

For example, Laslo Hayneck bought two pizzas and paid for them with Bitcoin. At the time, the pizzas cost him 10.000 BTC, which was roughly $ 30. However, if he held onto his tokens and spent them in 2017, he would have spent 0.001666 BTC, approximately $18.000. This example shows how Bitcoin values increase over time since it’s a deflationary currency.

Increasing Adoption

Bitcoin will have more value as more people use it for transactions. Some people hold onto their Bitcoins while others spend them. Also, some people lose their private keys, meaning they can’t access or spend their Bitcoins. However, Bitcoin’s adoption is increasing globally as more people trade and invest in it, and more merchants continue to accept Bitcoin payments. All these factors limit the number of Bitcoins in circulation while adoption increases.

These factors explain why Bitcoin is a deflationary currency. Besides being a currency, the cryptocurrency is a crypto asset whose value has increased over the years despite its volatility. Thus, some people opt to invest in this digital currency instead of using it as a payment method.

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