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Inflation

We take inflation for granted. We relate it with growing economies, and we see zero inflation and deflation as a sign of stagnating or shrinking economies.

Inflation in elementary terms is sustained increase in price level of goods over a period of time. For example, last year, if one could buy 1 kg of apples in 100 rupees, and now if they cost 110 rupees, simplistically speaking, inflation in apple prices is around 10%.

Prices are usually decided by demand and supply equilibrium, and it is quite natural to believe that price inflation happens because of increase in demand which also indicates growth.

However, inflation can also increase if currency starts loosing its value. And when does that happen - when government start printing more currency than it really should. It helps in the short term, however in today’s globalized world, it has a big negative impact in the longer term.

This is what distinguish money from currency. Money has the ability to preserve its value over the longer term, that is, unlike money, a currency is subject to inflation.

One a related note, this is the reason Satoshi Nakamoto designed Bitcoin to have a cap. I will write more on Bitcoin in later posts.

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