The upcoming halving is set to lower bitcoin’s inflation rate to just 1.8% annually, a figure lower than the targets of several central banks. Most central banks around the globe usually have inflation rate targets of around 2%. This means that after the halving event in May, Bitcoin is poised to be more sound money than most fiat currencies globally.
The lowering of the bitcoin inflation rate is embedded in the cryptocurrency’s code which is set as a tool to combat inflation. According to bitcoin’s code, the inflation rate is cut in half after each halving which typically occurs every four years. Currently the inflation rates stands at about 3.6% which is set to drop to 1.8% in May.
This bitcoin technology design is used to control the emission of new coins and regulate its supply in the long term. Unlike fiat currencies, there is a fixed supply of only 21 million bitcoin that can ever be created. Therefore, the halving is designed to limit supply by reducing how much bitcoin can be generated annually. The maximum supply is expected to be reached around the year 2140 thus the lowering of the inflation rate keeps the coin circulation in check.
The reduction of the inflation rate comes hand in hand with a reduction in the block reward. After the halving event, miners will be earning half of their current rewards posing potentially major consequences. It may cause a surge in the price of bitcoin due to a shrinking supply in the market and rising costs for miners. This possibility was recently highlighted by one Twitter user (@TheMoonCarl) with the tweet gaining huge appreciation from the crypto twitter community.
The #Bitcoin inflation is now 3.6% & will be 1.8% after the halving.
That's officially lower than the 2% inflation-target adopted by most central banks.
This is actually HUGE!
The $BTC price could easily jump to $200,000 within 2 years!
— The Floor (@TheMoonCarl) February 22, 2020
This news will come as a deviation to what has become the norm in the global financial sector. Generally, the inflation rate has been growing across various nations as the economic situations continue to deteriorate.
Just recently, China’s inflation rate spiked to 4.5% following a decline in the country’s economic performance, coronavirus outbreak, and government injection of 1.2 trillion Yuan in the economy. The US Federal Reserve continues to inject new money into the economy through quantitative easing measures which continues to push the inflation up.
Various other nations including Venezuela, Peru, Zimbabwe, and Argentina among others are struggling with high inflation rates.
With all these nations facing huge financial crises, Bitcoin seems to stand out as a less inflationary currency that could perhaps be the future global money.
Image courtesy of Marco Verch on Flickr
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