Depends on the digital currency. Digital currencies built on a blockchain cannot be inflated in the regular sense, because the total supply is fixed and cannot be altered once the currency has been launched. Bitcoin, specifically, has been built with the goal of avoiding central interference in mind. It has a small fixed supply that will eventually be completely mined and the proof-of-work method of obtaining Bitcoin ensures, that Bitcoin will be distributed on the basis of individual stake towards the system. The biggest problem with proof-of-work in my view is that Bitcoin was probably not designed to take off the way it did, the large number of users obtaining and transacting Bitcoin produced scaling issues and made mining so difficult, it could only be done in industrial conditions spending electricity the common individual cannot afford, or in "mining pools"thereby making mining inconsequential as a Bitcoin distribution mechanism. So, Bitcoin is not under the threat of inflation in the common sense, but there is a threat that it will become dominated by whales who freely manipulate the price, spreading FUD, and producing maximum volatility in order to fatigue the common user into selling their BTC at a bad rate.
Besides Bitcoin there are digital currencies that are vulnerable to a sort of inflation, XRP for example. XRP has a very large circulating supply and has personally premined a large part of their currency in order to fund various necessary operations. This creates a big risk for the XRP user, if Ripple managment decides to flood the market with previously out of use tokens, the price will plummet. It is not in their interest to do so, but they have openly flaunted with the power to do so.
The key challenge in my opinion is to produce a self-sustaining, decentralized digital currency that has no significant in-built engineering mistakes and therefore does not need any sort of central fixes, otherwise we are simply transacting digitally, but still suffer under the same problem of trust that comes with using fiat.
Depends on the digital currency. Digital currencies built on a blockchain cannot be inflated in the regular sense, because the total supply is fixed and cannot be altered once the currency has been launched. Bitcoin, specifically, has been built with the goal of avoiding central interference in mind. It has a small fixed supply that will eventually be completely mined and the proof-of-work method of obtaining Bitcoin ensures, that Bitcoin will be distributed on the basis of individual stake towards the system. The biggest problem with proof-of-work in my view is that Bitcoin was probably not designed to take off the way it did, the large number of users obtaining and transacting Bitcoin produced scaling issues and made mining so difficult, it could only be done in industrial conditions spending electricity the common individual cannot afford, or in "mining pools"thereby making mining inconsequential as a Bitcoin distribution mechanism. So, Bitcoin is not under the threat of inflation in the common sense, but there is a threat that it will become dominated by whales who freely manipulate the price, spreading FUD, and producing maximum volatility in order to fatigue the common user into selling their BTC at a bad rate.
Besides Bitcoin there are digital currencies that are vulnerable to a sort of inflation, XRP for example. XRP has a very large circulating supply and has personally premined a large part of their currency in order to fund various necessary operations. This creates a big risk for the XRP user, if Ripple managment decides to flood the market with previously out of use tokens, the price will plummet. It is not in their interest to do so, but they have openly flaunted with the power to do so.
The key challenge in my opinion is to produce a self-sustaining, decentralized digital currency that has no significant in-built engineering mistakes and therefore does not need any sort of central fixes, otherwise we are simply transacting digitally, but still suffer under the same problem of trust that comes with using fiat.
Thank you for your comment!
Thank you for your excellent explanation.