The supply of money that contains the deflationary term is necessarily limited. Otherwise inflation occurs in that money. And to curb this deflation, the supply of a particular currency is limited. Crypto is no exception. Deflationary cryptocurrencies also have a finite supply. Which means the total number of coins that can be created is fixed. New cryptocurrencies cannot be created at will. Deflation occurs when the supply of deflationary cryptocurrencies decreases over time. Different methods are used by deflationary tokens to reduce their supply. Among the good things it offers is to reduce inflation. One of the attractions or benefits is transaction fees and the other is currency burning. These are the two most common methods.
An important point here is that deflationary cryptocurrency protocols have an deflation rate that is predetermined. This rate indicates the rate of change in the total amount of money available over time. Let's give an example for simple understanding. For example if 5% annual deflation occurs then a cryptocurrency with this deflation rate means that the total supply of the currency will decrease by 5% per year. That is to say that the total money supply is decreasing at the same annual rate as the rate of deflation.
Deflationary cryptocurrencies are similar to many inflationary cryptocurrencies. In all cases there will be a fixed or variable maximum supply that caps the total number of tokens that can be issued. This supply can reach the maximum limit. However, once this supply limit is reached, it is usually impossible to mint additional units. But such a situation is not always the case. Deflationary cryptocurrency economies are typically defluenced by the incentives of stakeholders who are stockholders. Such as miners, developers and users, whose different goals and motivations affect the supply and demand of cryptocurrencies.
We usually invest in different cryptos. But many times we don't think anything while investing. But of course it is important to understand deflationary as well as inflation when considering which cryptocurrency to invest in. I wrote a post fewdays ago about the inflationary in crypto. If we understand the difference between these two words, our investment will be easier and we will be able to profit from it. Cryptos have the potential for long-term growth and stability in times of economic uncertainty that we see with deflationary cryptocurrencies. So I think before investing we must know inflationary and deflationary.
