Inflation, the rate at which prices for goods and services rise, erodes purchasing power in traditional economies. It’s driven by demand-pull, cost-push, or monetary factors, with central banks managing it through interest rates. In cryptocurrency, inflation operates differently due to decentralized systems governed by code. Bitcoin, with a 21 million coin cap and halving events, is deflationary, reducing issuance over time. Ethereum’s inflation has decreased post-Proof-of-Stake and EIP-1559, which burns fees, potentially making it deflationary. Other altcoins may have inflationary models to encourage participation. Crypto inflation is controlled via fixed supply or algorithmic adjustments, unlike fiat’s policy-driven approach. Inflation matters in crypto as it affects token value, investor confidence, and staking rewards. Bitcoin’s predictable issuance makes it a hedge against fiat inflation, while high-inflation tokens risk value erosion without strong demand. Protocols must balance incentives and sustainability to maintain value, impacting both users and investors in the crypto ecosystem.
