For those of us who did not pay attention to our economics teacher at school, it seems we will get a second chance to study it through blockchain initiatives. In this post I will try t kick off the topic by looking at the basic principle of inflation as understood in economics, and look at bitcoin and it’s relation to inflation.
Inflation in the economics sense according to the oxford dictionary, is
“ A general increase in prices and a fall in the purchasing value of money”
Supply and demand is supposedly the reasoning behind this. If the demand for something increases, then in theory the price people are willing to pay for it will also increase.
What has this to do with crypto currency and tokenomics?
Well if we start at looking at the bitcoin model, the first thing we see is that the SUPPLY is fixed at 21 million coins. Thus if the Supply is fixed we should be able to conclude that the DEMAND is what we need to watch. IF demand decreases we would say that the currency is devalued and we then experience inflation. More Bitcoin is required to pay for products going forward.
I am looking forward to a discussion and comments,
...in the next part I will dig a little deeper into why platforms with utility tokens need to manage monetary and fiscal policy
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