You don't only hear the word inflation on the news every day. You feel it when you go to the grocery store, gas station, or restaurant.

The word inflation is something we hear more often nowadays. Besides hearing it, we deeply feel it in everything. The prices of anything we use daily go up day by day in gas stations, grocery shops, or restaurants. We witness the rapid changes in prices although we are not used to in many years, especially in developed countries. Inflation is a reality of our days, and we need to learn what it is and how to deal with it.

What is inflation?

Inflation is a rise in the prices of goods and services in an economy that can be commented as the decline of purchasing power over time. Inflation is calculated by the percentage of an increase in the prices of different goods that a regular citizen buys regularly. Price of some good increase more than others. The most common way to calculate inflation is by creating a basket of goods that includes food, fuel, utility bills, health care, and entertainment services.

Why is inflation so high in 2022?

There is no easy answer to this question. But today’s inflation has two main reasons. The first reason is post-pandemic global monetary expansion. Central Bank’s first duty is to keep the money’s value stable in an economy. Central banks do it by controlling the money supply. Controlling the amount of money in circulation to assure price stability.

Pandemic was a big shock to economies that had never been experienced globally in human history. Almost all economic activities stopped during the pandemic, factories stopped working, people stopped going to work, and restaurants got closed. Central Banks started to step in and came up with a solution of printing more money and giving it away to boost economic activities. The abundance of money pushes prices up.

The second unexpected reason for high inflation is the soared geopolitical risks. High tension between Russia and Ukraine triggered commodity prices upward. Russia is a major oil, natural gas, and metal supplier in the world, while Ukraine is a major grain, wheat, and sunflower supplier in the world. Both energy and food supply is limited due to regional unrest, and it is another reason that pushes prices up.

What is deflationary cryptocurrency?

Modern money theory requires central banks to increase the money supply over time because there is an increasing population and economic activity. No fiat currency has scarcity. Central banks can print more fiat currency depending on the status of the economy. Fiat currencies are inflationary.

Deflation is the opposite of inflation. Deflation means the decrease in prices of services and goods over time. If the price of a good or service that can be a cryptocurrency payment method is decreasing, it is deflationary. Deflationary assets are scarce, and the supply of the asset will decrease or stay stable over time.

Bitcoin is a deflationary cryptocurrency because the maximum supply of Bitcoin is predictable. There will be a total of 21 million Bitcoin only despite the increasing population and economic activity. There are currently 19 million Bitcoins, and the last 2 million will be mined until the year 2140.

There are also some other major deflationary cryptocurrencies such as BNB, Matic, XRP, SOL, and TRX. Deflationary cryptocurrencies have a maximum supply. When the last coin is mined or minted, there will be not a single more coin. It is believed that the price of deflationary crypto currencies will increase over time in the long term.