Summary: Inflation is the worst enemy for every country’s economy but blockchain is potentially the most viable solution for fighting it.
Prologue
You must have heard, “With great power comes great responsibility.” This applies to every category of power, even the ‘Purchasing Power’ of common individuals, if overlooked it can cause inflation. Just like purchasing power, there are many reasons why inflation occurs but we are focusing on the solutions here. Not the economic strategies, the one capable of refabricating how our economy operates: Blockchain Solutions.
Can we Develop Metaverse Without Blockchain Technology?
What’s Inflation?
First, let’s learn a bit more about inflation as our primary motive is to discuss a way of this rising inflation. We want to make sure that you understand clearly about ‘how severe the problem is?’, before learning ‘why blockchain?’.
Definition: A decline in purchasing power due to the rise in the prices of goods and services can be called inflation.
Inflation and purchasing power are weighted on the two sides of a scale. As the inflation increases the purchasing power decreases but vice versa if the purchasing power increases, the inflation may decrease below the minimum tolerance level. So it needs to stay positive and serve its purpose just right.
It’s a measurement that indicates the increased prices of goods and services. Daily, individuals need commodities, services and goods to keep on living. So if a matchbox in India costs Rupee 1 and after there is an increase in cost i.e. unit price change is observed.
Major Disadvantages:
- Impacts the purchasing power of an individual, they might not be able to buy the product.
- The cyclic demand and supply chain will be broken and people will not spend more.
- It will eventually affect the whole economy and the respected civilians’ daily lives.
Use Case:
You leave for the office but before you start your productive day, you would like to have a cup of strong electrifying coffee. The coffee place you usually visit sells the best in town and you feel lucky. You enter the shop, order a cup of rich texture, steaming hot bitter but just the amount of sweet coffee.
The shopkeeper serves you and tells you the price is $1.90 and you are shocked. You say to him that “In 1970 I used to pay $0.25 and now in 2022 you’re telling me I need to pay $1.90 now. Disgusting. You shout again “If I compare the price I had to pay today and subtract it with the price I used to pay, then divide it by hundred it will give the inflation rate. You are telling me the Inflation Rate = (1.90 – 0.25) / 0.25 * 100 = 640%, I have to pay you 640% extra!!!!!!!! What is this monstrosity” and then you keep blaming the economy.
Just to show how serious inflation is a problem to an individual and a country here is the country who experiences hyperinflation.
- According to the IMF, the consumer price of Venezuelan goods grew at a rate of 65,000% between 2017 and 2018.
- Zimbabwe had an inflation rate of 193.4% at the end of 2022.
- Lastly, Yugslaviya and Hungary with an inflation rate of 313,000,000% and 204% respectively. Here Hungary saw that the prices of its goods and services were doubled every 15 hours and Yugslaviya had a daily inflation rate of 64.6%.
The Reasons
Now that we know what inflation is and how it has a drastic effect on our economy we should find the reason behind it. Once we know the reasons we will consider the blockchain solutions that can help with the problem. So there are basically three types of inflation and can be also addressed as the reason behind the inflation.
| Sr No. | Reasons | Quick Explanations |
| 1 | Demand-Pull Effect | When there is low production output in service and goods. So the price of the goods and services will naturally increase. |
| 2 | Cost-Push Effect | The cost of the raw material increases and leads to an increment in production cost. |
| 3 | Built-in inflation | To maintain the standard of living, prices rise and wages rise. This directly affects the inflation level. |
How can Blockchain Solutions help fight inflation?
A secure and scalable future that is fabricated by blockchain solutions. So far that has been the hymns of the high-order enthusiasts about the technology. But here we are discussing rescuing a country whose economy is on the verge of collapse. Does blockchain technology have that kind of caliber? Let’s go through its most crucial aspect that can act as a use case.
Digital Currency and Exchange Platforms
- The currency operated in the blockchain technology flow is deflationary. Deflationary currency is different from fiat currency as it is digitalized and limited to a certain amount. This way people can invest, save, and plan according to the price going high or low.
- These characteristics can help people save currency. Due to halving the price of currency will reach an amount, where it will be valuable for people to exchange it.
- It will help common citizens to take loans and even though the interest rates go up the borrower will be able to repay the debt quite quickly. Imagine that between countries and the IMF.
- Using stablecoins instead of fiat currency can lead to a sustainable, economically fluid transactional system. This will keep the currency away from volatility and maintain the inflation rate.
- Another huge transformation blockchain has been able to introduce through the acceptance of the government is CBDC. Centralized Digital Bank currencies are digitized fiat currencies controlled and distributed by the Government.
Smart Contract for Transaction Costs
One of the most important issues is the high transactional cost faced by countries when making global payments. The issues can be nullified using smart contracts that allow the two parties to make a transaction without an intermediary. These contracts are perfectly safe and can be developed easily using surface blockchain technology. They work on a permissioned blockchain network so the record acts as proof of action to make the transaction.
Transparency for Fraud Detection
Blockchain in the Fintech industry has made significant improvements and at the core it can reshape the functionality. A Decentralized Finance System, or DeFi system allows people to perform various monetary transactions on blockchain technology.
DeFi enhances our current financial ecosystem, digitalizes it and elevates the operational as well as the security standards. People can lend, borrow, transact money and make payments without any fear of fraudulent practices. Also it saves the transaction cost, which is our biggest concern. Blockchain-enabled DeFi will surely make our financial services convenient. Hence keeping inflation in check for common individuals and government authorities.
Epilogue
The government is not the sole warrior when it comes to fighting inflation. Through conclusive development, we could make our country better and keep inflation at a positive level. But every warrior needs a weapon, a tool, blockchain solutions are those innovative tools. Hiring an experienced blockchain development company that could fabricate these solutions will lead to the conclusive progress at global level.
