Bitcoin Inflation

Inflation in Bitcoin is not the same as in fiat systems. The classical definition does not fit here, or rather, it does not reflect the essence of what is happening. Bitcoin mining, at the moment, is only a conditional inflationary process.

What is inflation in Bitcoin?

The fact is that it is impossible to consider the ecosystem of a currency solely from the point of view of inflation. Inflation is not only exclusively the printing of new banknotes, even in fiat systems. This is also the introduction into mass operation of PREVIOUSLY printed banknotes that were in some kind of isolation up to this point. For example, in some funds or closed economic systems that are not in contact with other parts of the system, there are also loans and bills and other instruments that can increase the money supply.

As everyone knows perfectly well that money is also a commodity. And if there is a lot of any product– it becomes cheaper. The only question is how much money goods are involved in the current stack of transactions-time. If there are more funds than the goods and services offered on the market, then the economy will immediately try to adjust the cost of goods and services in a particular place.

Who controls this process?

Money issuer. In classical economics, he can both increase the money supply and withdraw it from circulation with absolute impunity. The latter, however, is very rare. For the convenience of control and “democratization” of the process, the state creates money exchange centers, in particular, exchanges. The state, as the largest organization in the market of its currency ecosystem, plays exclusively according to the rules convenient only to it and in its own interests.

What is in Bitcoin?

In bitcoin, of course, there is no state. But there is a huge amount of money that has been released and is waiting in the wings. There are more than 2000 bitcoins on almost 1000 addresses in the blockchain. In total, they have 6500,000 bitcoins. If we sum up the first 3000 addresses, then they will have amounts of at least 750 BTC, and in total they will have 8660000 BTC. 10000 of the largest addresses already control more than 11 million bitcoins.

Most of these 11 million are not moving anywhere. Therefore, it is sterile and does not affect anything. The owners of these bitcoins are well aware that they will not be able to sell them in a short time. If they want to sell even 1% of this amount – 100,000 bitcoins in a short time, the bitcoin exchange rate will drop significantly. It should also be remembered that almost all of these millions were mined for cents.

Inflation in bitcoin can be determined by analyzing the age of bitcoins flowing through the blockchain. This duct should strive for an average somewhere in the region of 2500 days at the moment, steadily increasing. A sharp change in the average age signals an excess of "cheap" bitcoins, which in fact is inflation. This calculation should be made not on the basis of transactions between addresses, but between address ecosystems.

If the average age of bitcoins has increased for some reason– this is a signal that only “fresh” bitcoins have been involved in circulation recently and means that “old" ones will come soon and the exchange rate will definitely decrease.

You can read more about address ecosystems here.