How Can Bitcoin Work perfectly in The Form of Inflation Hedge?

Feb 25, 2022

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Bitcoin is a digital currency that cannot be tampered with by any government or central bank, and it isn’t easy to attempt to figure out what makes it work. Many fans on several websites see it as the ultimate hedge against Inflation, but not everyone is on board with Bitcoin. With some help here, you can understand how Inflation can affect your wealth through two primary channels, total costs and value-to-cause of deflation.

In many ways, it’s similar to cash or gift cards and ideal for making purchases or donations. There are Bitcoin “kiosks” in various locations all over the country where you can buy goods or gift cards with Bitcoins. Alternatively, you can use any trading site to find people in your community who will sell you Bitcoins for cash.

Recent Trend of Worldwide Increasing Inflation

There are severe Inflation problems, including rising prices and the loss of purchasing power due to devaluation. You can see this trend in the chart below, which shows an increase in worldwide Inflation over the past 140 years.

  • Defining Inflation is defined as “a rise in the general level of prices across all goods and services at a national level.” Suppose a currency loses its value because of deflation hyperinflation. And when a currency gains value because of Inflation, it’s called stagflation. However, both these cases end up boosting the prices. 

If we look at revenue in terms of purchasing power, we can see a different type of Inflation: income inflation. It is the rate at which your income buys less over time. Again, it’s essential to know what makes them apart. Confusing them may lead you to misunderstand how and why wealth changes.

Why is Bitcoin the best option as an Inflation Hedge?

For those who are still new to Bitcoin, the idea of deflation sounds like a good one. This would be similar to buying food for less or not paying for water bills or electric bills in real life. However, that’s not how the world works in general. Things don’t have to cost more when there is Inflation - it can work out cheaper than ever before due to deflation. Some reasons that make Bitcoin suitable as an inflation hedge are detailed here.

  • Limited Supply - Firstly, Bitcoin comes with a definite supply of around 21 million Bitcoins. It makes it more secure than fiat currency, which creates more money and leads to Inflation. The supply of Bitcoin is fixed and cannot be expanded by the government. It is the central aspect that attracts investors to Bitcoin. Many would argue that fixed money supply is the biggest challenge in minimizing currency inflation.
  • Immutable Ledger - Secondly, the ledger - a record of every transaction - is immutable and open for all to see. The information cannot be distorted because it’s recorded on a public, open and unalterable ledger book. It makes it hard for governments to manipulate or steal money from their citizens since they do not control such a system’s backbone.
  • No Effect Of Demand - Secondly, Bitcoin price is not affected by the demand or supply from central banks as with central bank-issued currencies. Thirdly, since a limited amount of Bitcoins is in circulation, demand is limited, and supply is not restricted. This makes Bitcoin an inflation hedge.
  • Global Reach - Thirdly, the demand for Bitcoins is not confined to one country alone. It means that you’ll be able to buy whatever you want no matter what your local currency or state’s laws say about you buying Bitcoin. One of the main attractions of Bitcoin is that it can transcend borders and regulations on how money should be spent.

Users can see how they receive taxes and spend on a crypto trading website like bitcoin equaliser . The cost of production is lowered, and the cost of transacting with Bitcoin is lower compared with central bank-issued currencies. This way, Bitcoin can be used as a reliable means of payment for future consumption. It’s an easy way for people to buy goods in the future that they can’t yet afford today.

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