Bitcoin is a virtual currency that Satoshi Nakamoto created as an alternative to fiat currencies. Satoshi created this digital currency as a response to the financial crisis of 2008. This digital currency has many advantages such as fast and real-time transactions with low or no transaction fees. Anyone can
invest in crypto; it is a safe way to save your money. On the other hand, this digital currency has a maximum limit, which means that only 21 million Bitcoins will be available. Meanwhile, miners have already produced 19 million Bitcoins, which means there are 2 million Bitcoins in circulation. Due to limited supply and scarcity, this digital currency does not suffer from inflation, instead it is a perfect hedge against inflation. Inflation is a situation in which the prices of goods and services increase. The purchasing power of people decreases when the prices of goods and services increase. Consequently, it takes more money to buy a product than you could have used. Inflation prevails with fiat currencies because governments can keep printing more money and releasing it to the public. The central bank of a country controls inflation.
How does an inflation hedge work?
A hedge against inflation is appreciated despite the decline in the purchasing power of traditional currencies. Consequently, this digital currency is a perfect hedge against inflation because it continues to hold its value even during inflation. So if you invest in this virtual currency, you protect your investments from inflation. The main factor that makes this virtual currency a perfect hedge against inflation is its limited supply. Likewise, this digital money goes through a "halving" process by which the reward of this electronic money is reduced by half. During the halving process, the demand for this digital currency increases while its supply decreases, which translates into an increase in the value of this virtual currency. With the limited supply of this virtual asset, the demand increases, leading to an increase in the value of this virtual currency. So you can say that this virtual currency is a perfect hedge against inflation compared to fiat currencies. Unlike traditional currencies, this digital money is easily portable. Regardless of your location, you can easily send and receive this digital currency anywhere in the country. In addition, this electronic money is easily accessible to anyone with internet access and a smartphone. In the end, the accessibility of this virtual money makes it easier for the unbanked population in underdeveloped countries. This electronic currency is fungible or exchangeable, which means that users can exchange one Bitcoin for another without losing value. Furthermore, this virtual currency has gained worldwide acceptance and widespread adoption. Despite the fact that the value of this digital currency is extremely volatile, in general, it is a perfect hedge against inflation. There are many major and minor reasons for inflation in an economy. However, most experts claim that Bitcoin can help protect people against inflation. However, over the past year, real estate and gold have been the main inflation hedge assets. These assets increased or maintained their value during inflation. So by investing in gold or real estate, you protect your savings from inflation and therefore do not lose your investments. However, investor interest in gold has steadily declined. Despite being a decent investment, especially in the long term, it does not offer the same benefits as before, furthermore, it is not very easy to transport and store gold.
Conclusion
Overall, it is safe to say that this virtual currency is a good store of value, as it is a perfect hedge against inflation. As a result, investing in this digital currency ensures that your savings do not lose value.
