Inflation is the depreciation of money.

The concept of classical inflation, which periodically occurs with fiat currencies, is familiar not only to specialists in the economic sector who perform certain tasks. The population of different countries, even over the past 100 years, has several times managed to appreciate in practice all the delights of the process; when the money of a particular state depreciates, purchasing power drops significantly since prices for all goods and services simultaneously rise. The cryptocurrency sector is somewhat different from the fiat financial system. First of all, because the number of different types of digital coins is technically limited, the formation of the current exchange rate occurs exclusively through commercial means, without the intervention of a government agency in any country. Despite this, there is also such a phenomenon as inflation in cryptocurrency, and it just has a slightly different range of manifestations.

Main Features of Cryptocurrency Inflation

Cryptocurrency inflation suggests that the volume of tokens is increasing, but the ability of users to use them rationally is decreasing. In fact, even the most deflationary crypto coins are subject to the phenomenon of declining purchasing power.

Even considering that the value of digital money directly depends on fluctuations in US Federal Reserve rates and several other factors, this asset is still more protected from inflation than traditional fiat money. In principle, cryptocurrencies are considered by many investors as a means of protection against ordinary inflation.

The main reasons why such a phenomenon as cryptocurrency inflation has already been noted, including relatively recently - in 2022:

• inflationary processes in the United States, in which the purchasing power of the population has decreased significantly;
• direct dependence on the rating and productivity of technology companies such as Amazon, Meta, and Apple;
• the strict policies of some countries regarding cryptocurrency assets and their absence from the lists of legal means of payment.

Inflationary processes are also influenced by force majeure circumstances and vivid examples of the collapse of well-known cryptocurrency systems and exchanges.

How to reduce inflation risks?

As in the fiat financial system, in the cryptocurrency, the best tool for effective protection against inflation is risk diversification. That is, investing no more than 15% of your available capital in one type of asset is standardly recommended.

It is always worth remembering the high volatility of cryptocurrencies, as a result of which you can either make huge profits under favorable conditions or suffer a serious crash with a loss of capital. Therefore, it is important to regularly update information on the market situation, competently perform analytics, and consider all possible manipulations.

To invest wisely in cryptocurrencies and reduce the impact of inflation, it makes sense to invest in the most inflation-resistant coins. These are today:

• BTC;
• ETH;
• XRP;
• ADA;
• EOS;
• XLM.

If we take a broader view of all potential prospects, then it is worth considering not only the available number of coins for mining but also additional opportunities, such as creating decentralized applications and services through ETH blockchains.