Cryptocurrencies may not be a good way of fighting inflation

The promise of cryptocurrencies as a solution to economic troubles may be misguided, a new report has revealed.

The research, conducted by blockchain research publication Diar, explores data from various cryptocurrencies and concludes that most coins show either positive inflation rate or a decline in purchasing power.

The report reads: “When an inflation rate is positive, the purchasing power declines and vice versa. Bitcoin, XRP, Nano, EOS, Stellar, Cardano and IOTA have been deflationary year-on-year while the rest was inflationary. Nano, followed by Stellar, have been the most deflationary cryptoassets year-on-year. However, if we consider year-to-date inflation, all of the cryptoassets were inflationary.”

On a year-by-year basis, then, most cryptocurrencies would not be able to fight against inflation and would fail to operate as a safety net for economies in financial turmoil.

That doesn’t mean that the technology has to be ruled out entirely, however, with Diar concluding that those coins with a “predetermined generation algorithm” are the best for use in situations of economic instability.

“In a time of economic uncertainty, it can be expected that people would rather switch to a cryptocurrency with a predetermined generation algorithm, which guarantees certainty of issuance,” the report adds. “While the price can never be guaranteed, certainty is more favourable than a monetary policy decision being made by a small group of developers.”

The Next Web