Inflation happens when the average prices of goods and services rise over time. This means each unit of money buys less than before. The same idea applies to digital currencies, where changes in the number of coins can also affect their value.
Inflation is when prices go up throughout the economy. As a result, money loses value and buys less. People usually notice inflation when things like food, transportation, or rent cost more than they did last year.
Economists track price changes with price indexes. A common example is the consumer price index, which looks at how the cost of a typical set of goods and services changes over time. These indexes help people and organizations compare prices from month to month or year to year.
Prices can rise for different reasons. Sometimes, the money supply grows faster than the economy, which can push prices up. Other times, demand for goods and services increases faster than supply, so sellers raise prices. Costs can also go up if making products becomes more expensive, such as when raw materials or wages rise, and these costs are passed to buyers. Expectations matter too. If people think prices will go up, they may act in ways that actually cause prices to rise.
When prices rise, people change how they plan and spend. Savers see that cash loses value over time. Workers might ask for higher pay to keep up with costs. Businesses may adjust prices, renegotiate contracts, or change hiring plans. Some investors look for assets that tend to keep up with or beat inflation.
In crypto, inflation refers to how the total number of coins grows. New coins can appear through mining rewards, staking, or protocol rules. If more tokens enter circulation and demand does not rise similarly, the value of each token can fall. Projects use different rules to manage token supply, so inflation in crypto depends on the code that issues new units.
Some cryptocurrencies set a fixed cap on total supply, so the number of coins cannot grow beyond that limit. Others set a steady issuance rate or use mechanisms that slow new supply over time. For example, Bitcoin reduces the number of new coins created in scheduled steps, which limits inflationary pressure from freshly minted coins. Different token models lead to different inflation profiles for holders and users.
In traditional finance, central banks control inflation by changing interest rates and adjusting money policies. These actions help manage demand and influence what people expect about future prices. In digital assets, supply rules are built into the system, and on-chain tools can change supply based on the project’s goals.
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