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@ Martin Mladenov
2025-06-02 14:01:13Inflation vs. Deflation: What’s the Difference?
Today, we use fiat currencies—dollars, euros, or leva—issued by governments and central banks that can print money without limit. This leads to inflation, a decrease in the purchasing power of money because the money supply grows faster than the goods and services in the economy. The result? Prices for everything—from bread to cars—rise over time.
Bitcoin, unlike fiat money, has a hard cap of 21 million coins, set to be fully “mined” by 2140. This means the money supply is fixed and can’t be arbitrarily increased. In such a system, as technology improves production and the economy grows, the amount of goods and services increases, but the money supply stays the same. The result is deflation—prices fall because the same amount of money is chasing more goods.
The Bread Example
Take bread as an example. Fifty years ago, making bread required a lot of manual labor—kneading, shaping, baking. Today, machines handle most of the process, from mixing dough to packaging. Production is faster, more efficient, and requires fewer workers. Logically, bread should be cheaper, right? Yet, its price has risen from, say, 20 cents decades ago to $1 today. Why? Because inflation, driven by printing more money, outpaces the cost savings from technology. In a Bitcoin standard, those same technological advancements would lead to cheaper bread since there’s no excess money “diluting” purchasing power.
Wages in a Deflationary World
Now, picture your boss saying, “We’re cutting your salary this year.” Sounds like a nightmare, doesn’t it? In today’s world, we expect wage increases to “keep up” with inflation. But in a deflationary world, where prices are falling, a lower salary isn’t a problem. If bread, rent, and clothes get cheaper, you can buy more with less money. For example, if your salary drops from $2,000 to $1,800 but bread falls from $1 to $0.75, your real purchasing power actually increases. It’s a radically different mindset, but it makes sense in a world with a fixed currency.
Why Is This So Hard to Grasp?
The idea of falling prices and wages feels alien because we were born into an inflationary world. From childhood, we’ve seen the cost of everything—food, housing, even coffee at our favorite café—steadily rise. Inflation is so ingrained that we assume prices must go up. But this isn’t a natural law; it’s a consequence of the fiat system. A century ago, when gold backed currencies, prices often stayed stable or even fell as technology advanced. A Bitcoin standard would bring us back to that dynamic.
What Else Should We Know?
A deflationary world brings other fascinating changes. People would save more because their money would be worth more tomorrow. Today, inflation erodes savings, pushing us to spend or invest quickly. In a Bitcoin standard, we’d value the future more since our savings would grow in real value. But there are challenges too—deflation might discourage risky investments because people prefer holding money over spending it on uncertain ventures.
Moreover, a Bitcoin standard reshapes how we think about debt. Today, we take loans knowing tomorrow’s money will be worth less, making repayment easier. In a deflationary world, debts become heavier because you’d owe more real value tomorrow. This could make us more cautious and responsible with borrowing.
A Bitcoin standard invites us to rethink the economy we grew up in. Falling prices and stagnant or declining wages sound like a fantasy, but they’re the logical outcome of a currency with a fixed supply. Technology will keep making life easier and more efficient, and in a world without inflation, this would translate to lower prices and greater purchasing power. Maybe it’s time we stop taking inflation for granted and imagine a world where our money grows more valuable over time.