Why are all popular crypto currencies deflationary?

There is a lot of criticsm and debate over whether bitcoins will ultomately fail because of its deflationary nature.

I don't want to debate if that's the case or not and I also understand that the goal of bitcoin was to have a fixed amount of coins so that there is no risk of (hyper)inflation.

What I'm wondering is, would it be technically possible for a crypto currency to have a fixed target inflation rate? For example the european central bank has a target inflation rate of 2% (I think) which is supposed to stimulate growth while at the same time avoiding over-inflation.

So I guess my question boils down to: Why are all popular crypto currencies deflationary? Is it a technical problem that cannot be solved or is there another reason it was designed like this?

aKzenT

Posted 2013-12-21T22:43:06.130

Reputation: 131

Answers

There's no technical problem with making an inflationary crypto-currency. For Bitcoin, just changing the block reward schedule would do it. And there do exist crypto-currencies that have perpetual block rewards.

The thing is, the set of people who believe that inflationary currencies are good doesn't significantly overlap the set of people who think that currencies don't need to be managed by central banks. So there's not much of a market for such currencies. It's kind of like a veggie burger with bacon.

David Schwartz

Posted 2013-12-21T22:43:06.130

Reputation: 46 931

4"It's kind of like a veggie burger with bacon." Very good way to put it! – CoinEnablers – 2013-12-21T23:49:56.643

Can we really say that "ever increasing supply of coins" is equivalent to "inflationary"? If the amount of wealth produced in the world grows (which seems the case), the amount of money can increase without inflation. – bortzmeyer – 2013-12-22T13:50:14.753

The term inflation originally meant an increase in the amount of money in circulation. This is now usually called "monetary inflation" and that's what we mean when we talk about inflationary currencies. Wealth is still being taken from people who hold the currency, it's just partially offset by newly-produced wealth.

– David Schwartz – 2013-12-23T20:28:33.870

It is indeed technically possible. In fact, there have been some alt-coins that do have permanent inflation.

PPCoin achieves it by creating 2 kinds of blocks: one the normal kind, where you have to demonstrate you made some work to get the block reward, and another one where you demonstrate you've been hoarding some coins for some time (proof-of-stake). First kind of reward has a cap (as in most other alt-coins) but the second doesn't.

Some minor alt-coins don't halve the reward after a certain number of blocks - they may have or not a final coin cap, some indeed dispense with the coin limit. Unfortunately none of them seem to have really taken off or at least I can't remember a notable one right now.

Joe Pineda

Posted 2013-12-21T22:43:06.130

Reputation: 2 040