Inflation is a confusing topic. Few really understand and it is compounded by the fact that people online keep espousing the same falsities about it. Either way, in this article we will look at inflation and the digital age.
By the end, we should see how most of the fears that people have regarding it, especially in the world of cryptocurrency, are completely unfounded. It will also become clear what needs to happen for us to radically advance the global economy forward.
Near Infinite Output
Friedman gave us what classical economics looks as the premise of inflation. A rapidly increasing money supply, especially with a stable velocity of money, will lead to inflation if it exceeds output. Since it can move in that direction rapidly, in the physical world, inflation is often the result.
Of course, we have to keep in mind Friedman was talking about an actual increase in the money supply that actually affected the economy. The antics of today by the Fed and other central banks via QE does not fall into that category. It was a long time since we truly saw an increase in money, primarily USD, or a stable velocity of money.
That said, things get even stranger when we enter the digital world. Notice how Friedman pointed out "a more rapid increase in the quantity of money than in output". This is something to take note.
In fact, this is something that is impossible in the digital world. There is no way the money supply can outpace production. Hence, there is no way to create "too much money" in the digital world.
Most people associate inflation with the result of "too much money chasing too few goods and services". This is possible in a limited world. The digital world does not operate under the same principles.
Therefore, inflation is impossible in this realm if we are using Friedman's definition.
Non-Fungible Tokens (NFTs)
Splinterlands just sold out of their latest cards, the Waka series. From what I understand, they went for around $1,600 each, with 1,000 sold on Hive and Wax. This is a cool $1.6 million.
This is something that we have to analyze closely. There was $1.6 million in the sale of something that was created out of thin air. It did not exist one moment and was here the next. With a few minutes (if it took that long), all that commerce took place.
To put this in context, the entire inflation rate of Hive (360M coins at 7%) is less than $500K per week. This total was more than triple the amount.
Of course, we also saw the sale of land plots for the @psyberx game. As of the time of their post, there were nearly 1,000 of the 10K lots sold. These went for 100 HVE/HBD each. We are looking at nearly $100K.
This is just two examples of what was generated in the last couple days. How many other NFTs were created in the last 24 hours? How many will be created over the next year?
The only barometer is whether people want them or not. The ability to churn them out is not a problem. We see this happening in the hundreds of thousands and, eventually, millions.
Here is where we see the near unlimited nature of the digital world.
Downloads
Looking at this from another perspective, how many 99 cent songs can you download from the Itunes store before A) they run out or B) raise the prices?
The answer is neither will happen. An individual could spend all day downloading songs at 99 cents each and then I could come behind, grabbing whatever I wanted for the same 99 cents.
We are only limited by bandwidth. This means as long as the downloading kept taking place, the person could keep buying from Apple.
Digital items do not adhere to the same concepts we are so familiar with. In fact, there is one digital product that keeps growing at an exponential rate yet also get more valuable. That is data.
And that is where this frontier end up taking us. We are going to see the continued expansion of in this direction where data because more valuable as time goes by. This will accelerate the more that is generated, sorted, and categorized.
Thus, we are seeing a concept that so many are familiar with being turned on its head. That is what the digital world is.
It is a near infinite environment hence it is going to need near infinite amounts of money. Fortunately cryptocurrency can offer this.
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I don't play splinterlands, however I'm friends with a lot of people that do. I was really suprised about the Waka series. It's really a perfect example of how busy hive would be in the upcoming years. Like you said, who knows what's coming up next? I'd probably wake up to something that didn't exist while I slept.
Inflation is an issue with which we have to live daily, so the main thing is not to get desperate and stay calm even if we are not going through our best moment
One minor problem. The American economy does NOT operate on money. It operates on debt. A dollar bill is not money. It's an IOU.
Same for credit cards. The amount of debt a department store credit card can add to the economy is staggering. That's not evening counting the interest they charge with is usually pretty high.
I recall back in the day that I heard that Sears made more money off their credit cards than they did off of their merchandise. Dunno if that's true.
Damn I missed the land sales for Psyberx! are they still selling? Looks like HIVE is starting to produce it's own GDP with all these projects developing off it
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Ah I forgot about the WAX sales of Waka. Did it even go live yet? I haven't really heard anything about how it went yet.
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Very helpful, it shows us the clear differences between the digital world and physical world.
We don’t have to worry about inflation in the digital world. It will keep growing…
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I have been thinking about this concept ever since micro-payments have been included in games. Just like the songs you mentioned, players can purchase infinite amounts of in-game items and their supply will never run out for as long as the company keeps selling them.
The only difference (and the most important one) NFTs introduce is fair pricing. When you look at a skin for a game like League of Legends, it has a fixed price of about $5 on average but there is nothing justifying this price actually.
How did they come up with $5 when they never know how many will be sold? This creates a situations where a digital good that costs a few hundred or thousands of dollars to create is generating millions of income with no upper limit on the earning potential.
I personally see this as unfair because someone's day or two of work should never be worth possibly infinite amounts of money.
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!LUV
@tin.aung.soe(1/5) gave you LUV.
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Given the current emission rate of LUV pushing 500/day, increases to required LUV levels will likely be forthcoming.
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Check out the last post from @hivebuzz:
Interesting take on inflation, but I think I don't quite agree with this point. Data that provides information and value to an entity are getting more valuable as people recognize their potential, but not all data is valuable. In fact, most raw data isn't worth anything and in many circumstances, data is only made valuable if experienced analysis and data cleaning is applied to it.
Looks like there's a lot of money to be made in NFTs. Too bad, I don't just have inclinations for them. Soon, I might start looking in that direction.
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There's no inflation in digital currency. They always make gain at anytime.
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