What is deflation?
Deflation refers to the phenomenon whereby more and more goods can be purchased with one unit of a currency. In other words, the value of money within a given territory continues to increase over time.
It has been around for many centuries, and it occurs repeatedly in different forms. It has a negative impact on the export economy of a country, as it becomes increasingly difficult to sell products abroad.
On the other hand, the inhabitants of the respective country can travel more cheaply during this phenomenon, or buy foreign products. Japan is an example of a country that has been struggling with deflation for many years.
The issue of new money by the central bank may curb deflation.
Deflation and cryptocurrencies
Even though many people are unaware of the fact, even cryptocurrencies can be deflated. A single unit of the money can be used to purchase more goods than before. Deflation is always given in a percentage, which is projected for the calendar year.
If a deflation of 5 percent is indicated, 5 percent more goods can be purchased for the same amount of money as in the previous year. Of course, even during high levels, individual goods may become more expensive, for example, because of a shortage.
Therewell it is, therefore, always calculated using an average basket. Since crypto money is a global currency, the effects of it are slightly different than in the case of central bank money.
However, owners of the respective coins stand to profit significantly from it. Not only can you buy more goods for the same amount, you can also exchange your crypto money for more euros or dollars.