Inflation: How Bitcoin May Help Prevent It

What do you know about inflation?

Everybody has heard about its consequences. The shortage of goods and products, the loss of value of the population’s savings, the deterioration of the economic well-being of the population, social tension in society, the collapse of the monetary system and the money losing its function with accelerated inflation.

Inflation is a very complex, controversial process which has not been thoroughly studied yet. According to some economists, by inflation one should understand precisely the increase in the general price level in the economy.

In other words, inflation — is not an increase in the size of objects, but a decrease in the length of the ruler that we use.

For examples, in the conditions of barter exchange (in the absence of money), we would never face inflation, a simultaneous price increase would not be logically possible. Inflation is a product of modern money system.

It is interesting that it is possible to avoid inflation only if all the money turnover would consist of highly liquid and limited commodities, such as gold. Even though gold mining continues daily, the number of its deposits in the world is limited and does not increase with time.

Previously many countries in the world used gold and silver coins, a bit later with the transfer to paper money, the world financial system still backed up all the money by gold, the so-called “gold standard” was used. But in 1976–1978 the governments of the majority of influential governments came up with a new money system which is used up to this day. This is a system of currencies emission without tying them to gold, with free exchange rate relative to each other.

Today in economically developed countries 95 per cent of all money flow is cashless. That’s why increase of turnover money amount happens not through banknotes (cash) issuing, but through deposit check emission. It means increase of deposits on the accounts of clients and, respectively, the amount of checks serving the payment turnover.

It must be noted that many cryptocurrencies use the deficiency model of new coins and token issuing. For example, the amount of bitcoins is limited by 21 million of coins, which makes it similar to gold as a payment means.

In modern society people started to think over renewal of financial system. One of the options is coming back to backing all world currencies with a single scarce commodity, in particular, by bitcoin.

Against the backdrop of increasing cryptocurrencies popularity and increase of bitcoin liquidity, this theory does not seem too fantastic. And what do you think? Would it be worth reorganizing the world financial system?