How Bitcoin protects you against inflation
Posted on January 6 2021 – By Yada Wallets Team
Last updated on December 10 2021
In the last few years, there has been a lot of inflation in our current (fiat) currencies. This inflation usually happens behind the scenes of the central banks. However, the process of this has always been out in the open but may not be understood by everyone out there. So in this blog, we will go through what inflation is. How it impacts you, and why Bitcoin is a solution to this problem.
What is inflation?
To keep it very simple, inflation is basically the printing of new money. Making the supply of it grow and its value decrease. To give an example we look at an expansive painting of Picasso. Most of his paintings are unique and get their value out of being very pretty. But also from being the only one there is. As you can imagine if Picasso would have made a million copies of this particular painting its value would decrease dramatically. The same effect applies to money. The more money the central bank prints and brings into circulation the less value people give to it. This is what happens to a currency when it inflates.
Why and how does inflation happen?
Inflation (the printing of new money) is usually done by a central bank that operates as a part of or separate from the government. The main reason why these institutions inflate/print money is to stimulate the economy. The belief behind this is that as the value in peoples saving accounts decreases they will spend more of their money. Thus making the economic machine turn faster.
Problems caused by inflation
Although inflation may speed up an economy it also causes some troubles on the way. Like making people their savings disappear. And easily creating an imbalance between slow-growing salaries and the inflation of prices for (basic) products. This process does not leave a lot of space for errors that may occur, as people could suffer from diseases, loss of jobs, downturns in the economy, natural disasters, etc. In situations where this might happen people are usually left with empty bank accounts because their savings only decrease in value, thus making it so that they do not have a backup/rainy day fund.
Besides these worst-case scenarios, inflation also makes it harder/impossible to save for things in the future. Because savings could inflate away at a fast pace. People quickly have to turn to borrow money for big purchases. This process makes people more and more in debt. Thus creating a vicious loop of debt and empty wallets whit no room for human error.
What is Bitcoin? (short)
Bitcoin if you haven’t heard about it yet is an online cryptocurrency. There are many technical parts to Bitcoin but the only important things that you need to know about it are. It does not Inflate, It is adaptable for our modern-day society as it is only transacted through computers, phones, etc. Unstoppable, unhackable and, owned by all people that want to take part in the network.
Although many people may see Bitcoin as a speculative investment tool, it is not made to be this. Bitcoin is made to protect people against inflation and take the control/power of a monetary system out of the hands of central banks and give it to (all) the people. It does this by making sure that there will only ever be 21 million Bitcoins in existence. Because of this inflation does not occur in Bitcoin making it possible for people to use Bitcoin to save up value.
Besides that Bitcoin is not owned by any central bank, but by the people that validate the transactions on the network. These people often we often revere to as miners. Anyone can become a miner in the Bitcoin network. Simply by running the software that validates the transactions and stores the old transactions on the Bitcoin network (also called the Bitcoin Blockchain).
At the time of writing the Bitcoin, Network is still a young network and because of this, it may look very volatile when traded against other currencies like the dollar. Because of this people often overlook the fact that Bitcoins value is overall constant. Meaning that 1 Bitcoin keeps the value of 1 Bitcoin, because the amount of Bitcoins in existence does not increase. Whereas whit (fiat) currencies like the dollar. The value of 1 dollar decreases rapidly as the central bank keeps on printing more dollars every day.
More and more people switch to Bitcoin as a currency for saving because it is hard to rely on a fiat currency. Because it constantly inflates without your consent. Bitcoin solves this problem.
Yada Wallets is no financial advisor. So please keep in mind that this article is not financial advice. And that you should always make your financial decisions based upon your own research. Or contact your Financial advisor/professional.
Thanks for reading!
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