What is the Difference Between Inflationary and Deflationary Cryptocurrency?

Cryptocurrencies
are
the
most
valuable
and
riskiest
assets
for
investors
in
the
existing
market.
Many
people
are
interested
in
adoption
of
cryptocurrencies
as
they
provide
assurance
of
higher
returns
as
compared
to
other
assets.
The
inflationary
vs
deflationary
cryptocurrency
debate
has
gained
attention
in
the
domain
of
cryptocurrencies
as
people
wonder
about
the
selection
of
the
best
cryptocurrencies
for
investment.

The
availability
of
multiple
options
among
cryptocurrencies
presents
challenges
for
making
the
final
decision
about

investing
in
a
specific
cryptocurrency.
Do
inflation
and
deflation
have
any
significance
in
the
world
of
cryptocurrencies?
Inflation
refers
to
the
reduction
in
purchasing
power
of
money
with
the
passage
of
time,
which
leads
to
higher
pricing
of
products
and
services.
On
the
other
hand,
deflation
involves
an
increase
in
the
purchasing
power
of
money
with
time
and
leads
to
lower
prices.

The
concepts
of
inflation
and
deflation
also
work
in
the
field
of
cryptocurrencies.
You
can
find
inflationary
and
deflationary
cryptocurrencies
following
the
same
pattern
as
in
conventional
financial
landscape.
Inflationary
cryptocurrencies
are
the
ones
with
a
continuously
increasing
supply
over
the
course
of
time.

It
can
lead
to
loss
of
value
due
to
reduced
scarcity.
On
the
other
side
of
the
spectrum,
deflationary
cryptocurrencies
are
characterized
by
decreasing
supply
with
time.
Therefore,
the
value
of
deflationary
cryptocurrencies
increases
due
to
scarcity.
Let
us
discover
more
about
the
differences
between
inflationary
and
deflationary
crypto.  

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What
are
Inflationary
Cryptocurrencies?

The
best
way
to
unravel
the
differences
between
deflationary
and
inflationary
cryptocurrencies
is
to
understand
their
definitions
with
clarity.
In
addition,
you
must
also
learn
about
the
advantages
of
inflationary
cryptocurrencies
to
strengthen
your
understanding
of
inflationary
cryptocurrencies.

You
can
classify
a
cryptocurrency
as
inflationary
due
to
the
continuous
increase
in
supply
of
coins
over
time.
Inflationary
cryptocurrencies
utilize
a
combination
of
predefined
inflation
rates,
mechanisms
for
token
distribution,
and
supply
constraints
to
maintain
supply
and
offer
incentives
to
participants. 

Different
cryptocurrencies
have
unique
mechanisms
for
coin
creation
and
market
supply.
Inflationary
cryptocurrencies
serve
as
a
gradually
increasing
supply
of
coins
in
the

cryptocurrency
market.
If
you
are
looking
to
work
on
inflationary
and
deflationary
cryptocurrencies,
then
you
must
pay
attention
to
the
predetermined
rate
of
inflation
set.

The
predetermined
rates
indicate
the
rise
in
percentage
in
the
total
supply
of
the
cryptocurrency
over
the
course
of
time.
In
addition,
the
maximum
supply
of
inflationary
cryptocurrencies
is
generally
fixed
or
variable.
After
reaching
the
maximum
supply,
you
cannot
mint
the
cryptocurrency
anymore. 

It
is
important
to
note
that
not
all
inflationary
cryptocurrencies
have
a
fixed
cap
on
maximum
supply.
For
example,

Dogecoin
had
a
maximum
cap
of
100
billion
tokens.
However,
it
removed
the
supply
cap
in
2014
and
now
offers
an
unlimited
supply
of
DOGE
tokens.

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Working
Mechanism
of
Inflationary
Cryptocurrencies

Inflationary
cryptocurrencies
work
by
distributing
newly
minted
tokens
to
the
network
participants
and
leveraging
dedicated

consensus
mechanisms.
The
consensus
mechanisms
play
a
vital
role
in
mining
new
coins
or
distributing
existing
tokens
to
network
validators.
For
example,

Bitcoin
uses
the

Proof
of
Work
consensus
in
which
miners
receive
rewards
for
solving
puzzles
to
validate
transactions.
On
the
other
hand,

Proof
of
Stake
consensus
mechanism
rewards
validators
for
verifying
the
accuracy
of
a
block. 

The
inflationary
vs
deflationary
cryptocurrency
debate
would
also
draw
attention
to
distribution
of
cryptocurrencies
through
governance
decisions.
For
example,

Decentralized
Autonomous
Organizations
or
DAOs
can
vote
to
release
treasury
funds,
modify
staking
rewards,
and
establish
vesting
periods.
All
of
these
factors
can
influence
the
inflation
rate
of
the
cryptocurrency
alongside
the
distribution
of
new
coins.

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Examples,
Pros
and
Cons
of
Inflationary
Cryptocurrencies

Some
of
the
notable
examples
of
inflationary
cryptocurrencies
include
Bitcoin
Cash,

Ripple,
and
Dogecoin.
You
must
also
notice
the
advantage
of
inflationary
cryptocurrencies
for
a
comprehensive
comparison
with
deflationary
cryptocurrencies.
The
most
noticeable
benefit
of
inflationary
cryptocurrencies
for
investors
is
the
potential
for
reduced
volatility
due
to
a
larger
supply.
On
top
of
it,
the
lack
of
scarcity
also
reduces
the
risk
of
hyper-deflation.
The
larger
supply
of
tokens
enables
easier
use
in
everyday
transactions.

Inflationary
cryptocurrencies
also
present
some
formidable
challenges,
such
as
limited
potential
for
long-term
price
appreciation.
In
addition,
inflationary
cryptocurrencies
are
less
appealing
to
long-term
investors
seeking
a
store
of
value
with
cryptocurrency.
The
larger
token
supply
can
also
lead
to
setbacks
in
the
form
of
higher
risks
for
devaluation
and
inflation.

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Course

What
are
Deflationary
Cryptocurrencies?

The
next
important
player
in
the
debate
between
inflationary
and
deflationary
cryptocurrencies,
i.e.,
deflationary
cryptocurrencies,
are
different
from
their
counterparts
in
various
ways.
As
the
name
implies,
deflationary
cryptocurrencies
go
through
deflation
over
the
course
of
time
with
a
decrease
in
supply.
Deflationary
tokens
utilize
different
mechanisms
to
reduce
supply.
The
common
methods
for
reducing
supply
of
deflationary
cryptocurrencies
include
coin
burning
or
transaction
fees.

Deflationary
cryptocurrencies
follow
a
predefined
deflation
rate
encoded
in
the
protocol.
The
deflation
rate
helps
determine
the
percentage
of
reduction
in
the
total
supply
of
cryptocurrency
over
time.
For
example,
a
cryptocurrency
can
have
an
annual
deflation
rate
of
2.5%
when
its
total
supply
decreases
by
2.5%
every
year.
The
answers
to
“What
is
the
difference
between
inflationary
and
deflationary
crypto?”
also
suggest
that
deflationary
cryptocurrencies
can
have
a
variable
or
fixed
maximum
supply.
Deflationary
cryptocurrencies
can
also
remove
the
maximum
supply
cap
according
to
their
needs.

One
of
the
interesting
details
of
deflationary
cryptocurrencies
is
the
fact
that
their
economics
is
not
affected
by
the
incentives
for
stakeholders.
The
stakeholders,
such
as
miners,
users,
and
developers,
may
have
different
goals
and
motivations
that
can
influence
the
supply
and
demand
of
the
cryptocurrency.
Miners
can
mine
new
coins
and
hold
the
newly
mined
tokens
in
bull
markets
rather
than
selling
them.
Similarly,
removal
of
supply
caps
can
lead
to
increased
risks
of
manipulation.

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Working
Mechanism
of
Deflationary
Cryptocurrencies

The
ideal
approaches
to
proceed
further
in
the
inflationary
vs
deflationary
debate
for
cryptocurrencies
draw
attention
towards
working
mechanisms.
Deflationary
cryptocurrencies
can
utilize
indirect
or
direct
mechanisms
for
destroying
tokens
in
circulation.
Some
of
the
deflationary
cryptocurrencies
utilize
transaction
fees
to
encourage
burning,
which
can
reduce
the
total
quantity
of
tokens
in
circulation.

Token
burning
can
also
involve
the
process
of
sending
a
certain
amount
of
tokens
to
an
inaccessible
address.
Deflationary
cryptocurrencies
also
resort
to
other
instruments
to
reduce
the
token
supply,
such
as
halving.
For
example,
you
can
take
a
look
at
Bitcoin’s
halving
mechanism
to
understand
its
role
in
reducing
token
supply.

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familiar
with
the
terms
related
to
cryptocurrency
with
our
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Flashcards

Examples
of
Pros
and
Cons
of
Deflationary
Cryptocurrencies

Notable
examples
of
deflationary
cryptocurrencies
include
Bitcoin,

Ethereum,
and

Polkadot.
It
is
also
important
to
understand
the
advantages
of
deflationary
cryptocurrencies
to
figure
out
why
they
are
better
than
inflationary
crypto.
Deflationary
cryptocurrencies
present
the
best
possibilities
for
long-term
price
appreciation
owing
to
their
increasing
capacity.
They
are
also
ideal
options
for
long-term
investors
seeking
a
reliable
store
of
value.
On
top
of
it,
deflationary
cryptocurrencies
also
present
a
lower
risk
of
devaluation
and
inflation.

Deflationary
cryptocurrencies
also
present
some
setbacks,
such
as
risks
of
hyper-deflation
due
to
scarcity
or
higher
volatility
due
to
restricted
token
supply.
The
smaller
token
supply
also
makes
deflationary
cryptocurrencies
less
suitable
for
everyday
transactions. 

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What
are
the
Differences
between
Inflationary
and
Deflationary
Cryptocurrencies?

Inflation
helps
in
increasing
the
token
supply
of
cryptocurrencies,
thereby
leading
to
more
expenditure
and
network
adaptability.
On
the
other
hand,
deflation
encourages
scarcity
and
storage
of
value
by
reducing
supply
and
increasing
scarcity.
Here
is
an
overview
of
the
difference
between
inflationary
and
deflationary
cryptocurrencies
on
the
basis
of
various
important
pointers.

• 
  Supply
  Mechanism

The
supply
of
inflationary
cryptocurrencies
increases
with
the
passage
of
time,
while
deflationary
cryptocurrencies
reduce
supply
over
time.

• 
  Monetary
  Policy 

Inflationary
cryptocurrencies
follow
a
flexible
monetary
policy,
while
deflationary
cryptocurrencies
are
likely
to
go
with
fixed
monetary
policies.

• 
  Incentives
  for
  Holding

The
prominent
advantage
of
inflationary
cryptocurrencies
is
the
opportunity
to
spend
more,
as
they
don’t
encourage
holding.
On
the
other
hand,
deflationary
cryptocurrencies
encourage
holding
as
it
reduces
the
supply
of
tokens
in
circulation.

• 
  Price
  Stability 

Inflationary
cryptocurrencies
are
less
volatile,
while
deflationary
cryptocurrencies
are
more
volatile. 

• 
  Economic
  Philosophy 

The
economic
goal
of
inflationary
cryptocurrencies
revolves
around
fostering
growth
and
spending.
On
the
other
hand,
the
advantage
of
deflationary
cryptocurrencies
focuses
on
their
economic
goal
of
serving
as
a
store
of
value.

• 
  Deflationary
  Pressure 

Inflationary
cryptocurrencies
experience
limited
pressure
for
deflation,
while
deflationary
cryptocurrencies
experience
strong
and
scarcity-driven
pressure
for
deflation.

Here
is
an
overview
of
the
differences
between
inflationary
and
deflationary
crypto.

Final
Words 

The
answers
to
“What
is
the
difference
between
inflationary
and
deflationary
crypto?”
showcase
that
each
variant
has
distinct
advantages.
At
the
same
time,
they
also
have
their
unique
setbacks.
The
simplest
way
to
understand
the
difference
in
an
inflationary
vs
deflationary
cryptocurrency
debate
is
the
supply
mechanism.
The
supply
of
inflationary

cryptocurrency
increases
over
the
course
of
time,
while
deflationary
cryptocurrency
has
a
decreasing
supply
to
encourage
scarcity.
Learn
more
about
inflationary
and
deflationary
crypto
to
make
the
right
choice.

*Disclaimer:
The
article
should
not
be
taken
as,
and
is
not
intended
to
provide
any
investment
advice.
Claims
made
in
this
article
do
not
constitute
investment
advice
and
should
not
be
taken
as
such.
101
Blockchains
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not
be
responsible
for
any
loss
sustained
by
any
person
who
relies
on
this
article.
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your
own
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