We often worry about inflation in government backed currencies but for cryptocurrencies I see in much more dangerous thing happening it is the deflation which was devastated a cryptocurrency if it begins to deflate.
Deflation what is it
When prices go down and ordinary things become cheaper we as consumers are happy, but it is not necessarily a good thing because deflation occurs when prices go down and keeps going down, And if you look historically Inflation has proven to be more devastating than hyperinflation. This is because when prices go down income from selling items also go down and when the income goes down the prophet also go down and we'll profits go down the companies cannot afford to keep so many employers on staff so I will do employees have to take a pay cut and thereby having less money to buy new things or some employees have to go and when you see your neighbour having less money by either having take a pay cut or getting fired you will also get depressed and use less money. Now that we use less money the company's profit will go even more down which will result in even fewer money for salaries, And this vicious cycle will continue until it is broken the last time we saw true great deflation was in the 1930s where we had the Great Depression. Though in recent years from the 1990s we have seen deflation tendencies and Japan as a repercussion of the Housing bubble it is not true deflation but the tendencies to a deflation that can leads into a true deflation is there, In Japan they have another problem then ordinary deflation because in Japan that mall older people than young people and when we have seen the place in and the housing market in Japan we would expect the younger population to come in then buy all the houses for sale and their by turning the deflationary tendencies into inflationary tendency but because the supply is much higher than the demand the deflation of housing prices will continue.
Cryptocurrencies and deflation.
If we saw a deflation currency in crypto economy right now the money would go out to Fiat currencies and the price would just plumb it to the ground and some people would lose a lot of money but most who have invested have hopefully not invested that much the most dangerous thing I see is that some people actually have use their mortgage to Buy cryptocurrencies with and it is full of people the biggest danger of deflation, it is because if deflation were to occur they would lose the value of their coins and still be indebted and if they have no viable alternative income they might actually lose their house.
The secondary problem with deflation is cryptocurrencies Is that people will lose faith in cryptocurrencies as a whole even if it's only bitcoin that is deflating and that trust in blockchain based economy will be extremely hard to regain but with the right people backing bitcoin and other cryptocurrencies the fight will be winnable.
How can it occur
For limited currency like Bitcoin it is possible a deflation will occur when people lose access to their funds and thereby have a smaller circulating supply even though the number at the Endpoint say that there are 21 million circulating bitcoins we do not know that that will not be true, due to the many Histories of people losing access to their bitcoins by forgetting the password losing the private key us simply forgetting about having them and as more and more people lose access to their funds the circulating supply will become one more scarce and this can trigger deflation In the currency But before it deflating can occur to have any lasting repercussions the cryptocurrency you need to be an actual currency because for many companies they will just take the profit in Fiat currencies and thereby still be able to make their profit margins.
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Another way for the deflation in cryptocurrencies general worldwide deflation as production and profit goes down worldwide people will not have the same purchasing power to acquire bitcoins and thereby the price will fall. Because the way the market is right now bitcoin is the gateway town to cryptocurrencies and if people cannot buy into Bitcoin the money will not flow into altcoins, And when money does not flow into altcoins the prices will it go down and we will see and all out deflation in cryptocurrencies.
How can i protect myself
Just as cryptocurrencies can protect you against inflation as we have seen in some South American countries, Fiat currencies can somewhat protect us against deflation in cryptocurrency, If there are worldwide recession there will be no protection but the best protection i see is to diversify make sure you have holdings in both Fiat currencies cryptocurrencies and other easy tradable Securities, never invest more than you can afford to lose and remember the bigger the possible profit the bigger the risk.