Bitcoin – Value Stability Through Protection Against Inflation

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Bitcoin – Value Stability Through Protection Against Inflation

Global banking crises and the payment problems of many countries are shattering the economy and lessen the confidence of private investors in the currencies of the states. Export and import goods are becoming ever more expensive and the state banks are putting more money into circulation to avert a possible bankruptcy. The resulting inflation depreciates the currency and makes prices more expensive. With Bitcoin, the developer under the pseudonym Satoshi Nakamoto has succeeded in developing a currency that is independent of banks and has a worldwide validity.

 

The decentralized generation of the bitcoin on the computer and its quantity limit to 21million bitcoins prevent inflation. The currency is generated worldwide at currently 6 blocks per hour. By solving complex computing tasks, 50 Bitcoins are output as a reward per block. To stabilize the electronic currency, the number of blocks per hour is maintained but the payout of the reward is regularly reduced. As a result, the growth of the money supply is effectively slowed down and stopped when the volume limit is reached.

The quantity limitation of the bitcoin is to be understood as a tool for stabilizing the currency. In contrast to the currencies of individual countries, the purchasing power of Bitcoin is not dependent on the overall economic situation. Bitcoin, therefore, does not deal with global or country-specific economic crises. As a result, inflation or deflation takes place only at a negligible level. Furthermore, by the mining, the generation of the blocks, the amount of money is regulated and kept stable.

Critics, however, fear a rapid increase in the value of Bitcoin. Speculators, in particular, could try to hoard the electronically generated money to wait for the right time for an optimal return. The resulting deflation has, however, an advantage for the users of the peer-to-peer network. The goods and services offered would be cheaper when the bitcoins are hoarded.

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