What is Inflation in Crypto? A Simple Guide for Kids Aged 14+

Inflation is a word you might hear often in economics and finance, and it also affects cryptocurrency! But what does it mean, especially regarding digital money like Dogecoin (DOGE) or Bitcoin? This guide will explore inflation, why it matters, and how it works in crypto. By the end, you’ll know how inflation impacts your favorite digital currencies and why deciding how they work is essential.

What is Inflation?

Inflation means that the amount of money in a system increases over time, which usually leads to the value of each coin or dollar decreasing. In other words, as more money enters the system, each currency unit may be worth a bit less. When you have more of something, like coins, they become less rare, so they don’t hold as much value.

Imagine you’re collecting rare Pokémon cards. If everyone suddenly got the same rare card for free, that card wouldn’t be so special anymore and might lose its value. This is similar to how inflation works with money or cryptocurrency. More money means less value for each unit.

Inflation in Cryptocurrencies: Dogecoin vs. Bitcoin

Not all cryptocurrencies handle inflation the same way. Let’s look at two popular cryptos—Dogecoin (DOGE) and Bitcoin—and see how they manage inflation differently.

Dogecoin (DOGE) and Its “Friendly” Inflation

Dogecoin is a fun, meme-based cryptocurrency with no fixed supply limit. It’s designed to add new coins over time, with 10,000 DOGE created every minute. This means that about 5 billion new DOGE enter circulation each year.

This might sound like a lot, but Dogecoin’s inflation rate decreases over time. Here’s how:

1. Each year, Dogecoin adds 5 billion DOGE to its total supply.
2. As the total amount of DOGE grows, this 5 billion becomes a smaller and smaller percentage of the total amount.

For example:

• If Dogecoin’s total supply is around 140 billion DOGE in 2024, adding 5 billion DOGE increases the supply by about 3.57%.
• If Dogecoin’s total supply reaches 170 billion by 2030, adding the same 5 billion DOGE would be around 2.94%.

This is called decreasing inflation. Over time, Dogecoin’s inflation rate will keep dropping, even though more DOGE is being created. This makes it possible for Dogecoin always to be available, encouraging people to use it rather than save it forever.

Bitcoin and Its “Limited” Supply

Bitcoin is a bit different from Dogecoin. When Bitcoin was created, it was programmed to have a fixed supply limit of 21 million coins. This means there will never be more than 21 million Bitcoins. Every four years, the amount of new Bitcoin created gets cut in half in the halving event.

Here’s what happens with Bitcoin’s inflation:

1. Bitcoin started by creating 50 BTC per block (a “block” is like a batch of transactions).
2. This amount is cut in half every four years, so the amount of new Bitcoin created decreases.
3. By around 2140, Bitcoin’s total supply will reach 21 million, and no new Bitcoin will be created.

This makes Bitcoin a deflationary currency. Since there’s a fixed limit, the value of each Bitcoin could go up over time as more people want it, but no more can be made. Think of it like a rare collector’s item that becomes more valuable as people buy, trade, and hold onto it.

How Inflation Affects Value: DOGE vs. Bitcoin

Dogecoin

Since Dogecoin’s supply increases yearly, it’s easier to access and less likely to have wild price changes based only on scarcity. More DOGE keeps entering the system, so each coin stays relatively affordable. People can use it more casually for things like tipping, donations, or even buying small items.

Bitcoin

Bitcoin’s limited supply makes it more like “digital gold.” As the supply of Bitcoin gets closer to 21 million, each Bitcoin might become more valuable. This scarcity makes Bitcoin an attractive choice for saving or investing because, theoretically, it could go up in value as people see it as a rare asset.

Why Inflation is Important in Crypto

Inflation affects how people use cryptocurrency. For example:

• Dogecoin’s inflation encourages people to spend rather than save it since more DOGE will always be available.
• Bitcoin’s limited supply makes people see it as a store of value, similar to gold, which could become more valuable over time.

Knowing how inflation works helps you understand why people choose one cryptocurrency over another. Some want a crypto they can use daily, while others want one that might hold long-term value.

In Short: Dogecoin and Bitcoin’s Inflation at a Glance

Choosing the Right Crypto

Understanding inflation can help you make smarter decisions about crypto. Dogecoin might be better if you’re looking for something to use regularly, while Bitcoin’s scarcity makes it more like an investment. Each cryptocurrency has its purpose and community, and inflation is just one part of what makes them unique.

With this knowledge, you’re one step closer to becoming a crypto pro! Understanding inflation is critical to know how these digital currencies work: DOGE, BTC, or any other coin.