Random thoughts on Inflation

I few days ago I read the a post from @meno called Understanding Dilution - Thoughts on Steem Inflation. One of the things that is mentioned is that Steem is an inflationary token as oposed to other cryptos.

This is true and I agree pretty much with all the points that he goes through on the video however, this is one of those things that get's mentioned a lot in the space without much thought. So I started to think about this and pulled some numbers up to compare the inflation rate of BTC and STEEM.

There a few things that strike out when we make a visual comparison between both currencies:

• Obviously the rate of inflation of BTC is lower than that of STEEM.
• The inflation rate of Steem decays at a much faster rate.
• As a consequence of the point above the difference between them is reduced over time (with the exception of the years where the Bitcoin halvening occurs) up to the point where no more bitcoins are issued around 2044.

One thing that is not obvious is that right now Bitcoin is inflationary since new coins are issued every time a block is added to the chain. So right now bitcoin holders are being diluted.

Source: Pixabay

Of course this dilution will stop once the supply of new coins stops in the future which brings us to another point:

It's frequently mentioned that BTC is deflationary because of this fact but, one thing that is not mentioned is that the market value is not determined by the supply of any asset. What determines the exchange rate (aka "the price") of anything is the interaction of the supply and the demand on the market.

Take STEEM for example, if the majority of the total supply is locked up as Steem Power then whatever hits the market could in theory be much less than what the inflation rate could lead you to believe.

Just some final thoughts, inflation at it's core is nothing more than the transfer of value from one group of people to another. So you might think that something like Bitcoin will not have this mechanism play any role once inflation stops but this is not totally true. By design there is a group that will always have value transfered to them within the bitcoin ecosystem: the mining pools.

At the end of the day maybe for any economic system to work there has to be a group that always has to benefit at the expense of others. I think that's enough for me to think about today.