Steemit Crypto Academy Contest / S9W3 - STEEM Inflation.

Greetings dear friends,
It is a pleasure to have you all on my blog once again. Still in the third week of the steemit engagement challenge for season 9. Today we are looking at a very important topic that is of benefit to all steemian which we call the "STEEM Inflation".

In this topic today, we are going to explore a few things concerning the term inflation, and to do that properly I will be attempting the questions given below. Without further ado, let's get started.

Inflation is one of the most used words in the world of finance. It simply means the rate at which prices of goods and services increase over a given period. That is the increase in the price of goods and services as compared to the previous price.

This can also mean a decline or reduction in the value of a said currency when it comes to purchasing goods or services. Since we have established at the beginning that inflation is the increase in the price of goods and services, it is also wise to note that it reduces the purchasing power of a currency.

Let's take a quick illustration to explain what inflation is all about. In January 2022, a certain car is sold at the rate of $250 for instance, due to inflation the price of the car then increased from $250 - $270, which means inflation has taken place, and the price of the goods has increased, and the value of the money which was used originally can no longer purchase same goods meaning the purchasing value of the money has reduced.

In summary, inflation is when the price of goods increases and the purchasing power of a currency decrease I.e it requires more currency to carry out a function it was supposed to have carried out with a lesser amount. Inflation is normally calculated yearly and it is mostly caused by changes in supply and demand.

Does it affect cryptocurrencies?

Yes, inflation affects cryptocurrencies. Recall I said earlier that cryptocurrencies obey the law of demand and supply i.e. the more buyers in the market, the more the price of the crypto goes up and the more sellers the more the price declines.

Demand for any asset makes the asset scarce and that makes the price of the asset raise significantly when the asset is supplied much I.e if it is distributed and many people start having much of the price drops as well.

So just like every other good and service, cryptocurrency is also affected by the inflation rate at some point in time. This makes the price of crypto either raise or fall depending on the scenario. We will explore this more as we move ahead.

Deflationary cryptocurrencies as the name implies Deflationary refer to those cryptocurrencies whose supply decreases with time. Here a certain amount of the crypto asset is created and with time the supply will start reducing thereby making the crypto asset scarce. This is to maintain the value of the asset and can be done by either halving, burning or gas fees, etc.

Most Deflationary cryptocurrencies reduce their supply either through any of the listed methods above and when that is done, we see that the supply in circulation reduces thereby controlling the price from falling.

Inflationary cryptocurrencies are the direct opposite of Deflationary cryptocurrencies. Here there is an increase in the supply of assets over time. This means that the crypto here encourages more supply of its asset into the market as more new coins are minted.

So when new coins are mined here it is distributed and that brings more of it to the market. This shows that the coins do not have a total supply as new tokens are still minted by the miners. The table below shows a clear difference between the deflationary and inflationary cryptocurrencies.

And clarify what is the strategy followed by the Steem token and show how it works.

In the case of the steem token, after considering what deflationary and inflationary cryptocurrencies are all about, you will agree with me that steem falls under both categories. I will explain better below so let's get started.

The steem token is minted and distributed whenever a block is produced i.e. every 3 seconds. This means that there is no total supply of the steem token as new ones are created. This is an element of inflationary cryptocurrencies.

In the deflationary part of the token, the steemit platform which uses the steem token has introduced the #burnsteem25 initiative to reduce the number of steem in circulation. Also, the /promoted page to burn SBD is also a strategy deflationary introduced. , the club status initiative is also brought to help lock assets which reduce the amount of steem in circulation.

In summary, steem can be said to be both a deflationary and inflationary cryptocurrency as we have seen how it increases over time and the strategies to reduce it over time as well.

To calculate the current inflation rate, I will first want to acknowledge Professor @kouba01 for providing such a detailed article to serve as a guide for me. I have read through the article and have also deduced my little explanations from it.

The calculations involve some constant values and a variable. As we know constant values don't change whereas variable values change. Let's see the formula below.

Inflation Rate = 978 - (Header Block Number /250,000) / 100

Where;

978 | 250,000, and 100 are all constant

Header Block Number is variable.

Now to calculate the current inflation rate based on the time of making this publication, I headed to the steemworld.org website and then I located system information, and then saw the head block number. The screenshot below shows it clearly.

From the above screenshot, the head block number as of the time when this post is been prepared is sewn at 74,405,518. That is the variable we need in the formula, so substituting it into the formula, we can yield the following

Inflation Rate = 978 - (74,405,518 /250,000) / 100

Inflation Rate = 978 - (297.622) / 100

Inflation Rate = ( 978 - 297.622) / 100

Inflation Rate = (680.378) / 100

Inflation Rate = 680.378 / 100

Inflation Rate = 6.80378%

Therefore the inflation rate will be 6.8038% to 4 d.p

To know if getting Steem's reward in the coming years will be easy or difficult, we need to prove it using mathematical formulas just as we have proved the inflation rate in the above question.

An increase in the block reward implies that earning steem in the future will be much easier whereas a decrease in the block reward implies that in the coming future, it will be difficult to earn steem. So we will do this via the mathematical formula.

New Steem = (Virtual_supply * Inflation Rate) / Number of blocks per year

Therefore in this formula, we have

Virtual_supply =?

Inflation Rate =?

Number of blocks per year =?

Let's see how to get all the values and substitute them in the formula. For the Virtual_supply, I headed to the steemworld.org website and then located market info, and then saw the Virtual_supply number. The screenshot below shows it clearly.

From the above screenshot, the Virtual_supply number is given to be 481,562,946.998 Steem at the time of writing this publication. So that has been solved. Let's other values.

From the calculation we made in the question above, the Inflation Rate was seen at 6.8038%.

Now, the next thing is the number of blocks per year. In steemit, blocks are produced after every 3 seconds and for that reason, we can have a total of (365 * 24 * 60 * 60) / 3 blocks a year.

This will give us a total of 10,512,000 blocks every year. Since we have all the variable values, let's substitute them into the main formula which is

New Steem = (Virtual_supply * Inflation Rate) / Number of blocks per year

New Steem = (481,562,946.998 * 6.8038%) / 10,512,000

New Steem = 32,764,579.787849 / 10,512,000

New Steem = 3.1169 STEEM to 4 d.p

Based on the current inflation rate above, it means 3.1169 STEEM is produced in every newly generated block. Note that rate of inflation of steem decreases by 0.01% after every 250,000 blocks and it will continue this way until the inflation rate reaches 0.95%.

Therefore,

If 3 seconds = 1 block

750, 000 seconds = 250, 000 blocks

I.e 750 / 3 = 250, 000 blocks

Converting seconds to days we will get

Day = 750,000 / (60 * 60 * 24)

= 750,000 / 86,400

= 8.681 days

This means that after every 8.681 days, the Steem inflation decreases by 0.01%

For the annual inflation rate, you can have it be

Annual inflation rate = (365/8.681)*0.01

Annual inflation rate = 42.0458 * 0.01

Annual inflation rate = 0.4205%

This means that 0.4205% is the annual inflation rate. Using this to calculate the inflation rate in 2 years to come we will have it be

0.4205 * 2 = 0.840%

So two years from now, the inflation will decrease by 0.840%. So let's check the difference considering the current inflation rate.

2 years difference = current rate - change in 2 years

= 6.8038 - 0.840

= 5.9638%

Therefore, the inflation rate after 2 years will reduce from the current one which is 6.8038% to 5.9638%.

With the decrease in the inflation rate, it means steem tokens will become scarce, and for that reason, it will be difficult to earn steem.

Would that push you to build your SP right now?

Yes, with the above calculations, a time will come when getting steem to power up won't be easy hence it is the right time to build the steem because we won't be getting the reward in this manner in the future. According to the law of demand and supply, the demand for the steem token will be high without it being available.

Hence I suggest that we build the steem power now as the price will surely raise when the demand for the asset becomes much and the supply is limited.

Steem inflation is indeed a wonderful topic that I have learned a lot about while making my research. Inflation means a rise in the price of an asset or a decrease in the purchasing power of any currency. We have seen that steem value increases and decreases as a result of the inflation rate. The criteria for inflation are usually demand and supply.

Finally, I will like to invite a few friends to also participate in the contest today. I invite @muzack1, @o1eh, @msharif, and @malikusman1 to share their participation in the contest.

Note Board: All images except those otherwise stated are screenshots taken by me from the steemworld.org website