Category: Crypto

Inflationary and deflationary cryptocurrencies are opposite sides of the same coin. The first one consists of increasing cryptocurrencies in circulation, while deflationary cryptocurrencies have a limited amount circulating (this amount usually remains the same, it doesn’t increase). Or, if they eventually do, it rises at a slower pace. 

What is a Deflationary Cryptocurrency? 

A deflationary cryptocurrency is a cryptocurrency that reduces supply over time, resulting in a limited amount of the currency in circulation and ultimately increasing its value. This reduction of supply happens in two ways. One is through buyback-and-burn, in which developers repurchase a large number of cryptocurrencies and send them to a dead wallet (or in crypto slang, “burns” them) so that it’s no longer in circulation. 

The second way is through transaction fees–also called burn-on transactions. The coin’s contract states that the tax applied to all on-chain transactions that involve that coin will be burned and removed from circulation.

However, to better understand deflationary cryptocurrencies, you should first understand more about the concept of inflation and deflation.

Inflation vs Deflation: What Are the Differences?

If you Google “inflation and deflation,” you will find that inflation increases the price of goods and services and that deflation is the opposite phenomenon, where prices for goods and services go down. 

But why do these phenomena occur? After all, prices can go up or down for various reasons, being the laws of supply and demand one of them.

Well, when there is an increasing amount of money in circulation, the value of this currency drops. As part of the logic of the market economy, everything abundant and easier to access tends to devalue over time. As a result, consumers will need more units of the same currency to trade for a specific good or service. This phenomenon is called inflation.

When the supply of money and credit drops, the price of goods and services declines, and the amount of money in circulation remains the same, it is called deflation.

With global inflation on the rise–mostly associated with the Covid-19 pandemic–deflationary cryptocurrencies are now in the spotlight as a way to dodge inflation.

What is an Inflationary Cryptocurrency? 

In an inflationary system, the total amount of money circulating in the economy increases continuously. Thus, the value reflected in currency declines, and capital loses value. In crypto, the same phenomenon occurs–as cryptos are simply a digital currency. An inflationary cryptocurrency is when the number of tokens in circulation rises. 

One example of an inflationary cryptocurrency is Dogecoin. In 2014, one of its creators abolished a hard cap of 100 billion to ensure the cryptocurrency had an unlimited supply. Over time, its value has gone through severe fluctuations. If you go back to May 7, 2021, you might recall that the altcoin with the iconic Shiba Inu dog logo spiked, reaching its all-time high of $0.64. A few days later, the token was worth $0.30. Today, the current price is near $0.10. 

Moving away from the meme altcoin, here is another–quite surprising–example of a token that was once purely an inflationary cryptocurrency: Ether, from the Ethereum network. However, as of August 2021, an update mandated to burn some ethers whenever the network activity rises to make the cryptocurrency deflationary. 

Most Popular Deflationary & Fastest Growing Cryptocurrencies in 2023

Before we talk about the most popular deflationary cryptocurrencies, let’s explain the system around the leading crypto of all: Bitcoin. 

If you are a crypto enthusiast, you already know that Bitcoin–the pioneer of all cryptocurrencies–has a hard cap of 21 million units. This number is forecast to be reached sometime in 2140. 

Until then, Bitcoin uses a process called “halving,” where it cuts the number of Bitcoins that can be mined and put into circulation every four years. In 2016, the mining reward was 12.50 bitcoins. It dropped to 6.25 in 2020 and will drop to 3.125 by 2024. After 64 halvings, all 21 million Bitcoin will be in circulation. This will make Bitcoin a scarce asset, and if demand continues to rise, its value will likely spike.  

So, is Bitcoin inflationary or deflationary? 

Bitcoin is technically inflationary because its supply increases over time. However, the halving process automatically reduces the supply of Bitcoins by 50% every four years, which makes Bitcoin resistant to inflation – a regular process for deflationary cryptocurrencies. It means that Bitcoin, one of the fastest growing cryptocurrencies, is both inflationary and deflationary. 

Besides Bitcoin, here are a few examples of the most popular deflationary cryptocurrencies in 2023. 

Binance Coin (BNB)

In the beginning of the article we mentioned that some deflationary cryptocurrencies use the Buyback-and-Burn approach to reduce supply.

One of the world’s leading crypto exchanges, Binance, uses this procedure to reduce the amount of Binance Coins (BNB). Binance repurchases BNBs from investors who profited more than 20% in the previous quarter and sends them to a dead address, out of circulation. As of January 2022, the total supply of Binance Coins is a bit over 166 million. 

Cronos (CRO)

Cronos (CRO) is the native token on another leading cryptocurrency platform, Crypto.com. This non-minable cryptocurrency has a limited supply of 30 billion tokens in circulation. 

PancakeSwap (CAKE) 

The native token of the PancakeSwap platform, CAKE, has no maximum supply – which would make it an inflationary token. However, CAKE uses a coin burn mechanism, making it deflationary. 

Litecoin (LTC)

Like Bitcoin, Litecoin (LTC) also goes through a halving process every four years. However, Litecoin supply has a hard cap of 84 million units. 

Solana (SOL)

Like CAKE, Solana (SOL) is both inflationary and deflationary. Having no cap on supply and distribution makes Solana an inflationary token. Also, Solana’s miners burn transaction fees, making it deflationary. 

Ripple (XRP)

Ripple (XRP) is the default currency of the RippleNet platform that charges transaction fees to reduce supply. These fees don’t return to the central authority nor are used to reward validators, but are burned – thus making XRP a deflationary cryptocurrency. 

Polygon (MATIC) 

MATIC is a native token to the Polygon blockchain technology. Its two purposes are to pay translation fees and participate in the Proof-of-Stake (PoS) consensus program. A percentage of each block’s transaction fees is burned to provide support for the MATIC crypto’s value. 

Bitcoin Cash (BCH)

Like Bitcoin, Bitcoin Cash (BCH) has a capped supply of 21 million units. And, like BTC, it also uses a halving process that reduces the mining rate by 50% every four years. In addition, Bitcoin Cash also burns coins: Antpool, a crypto mining pool that validates 10% of BHC transactions, burned 12% of the block reward received in 2018. As a result, the price went up.

How to Trade Crypto

You can make a crypto trade by exchanging one crypto for another (such as Bitcoin to Ethereum) or buying or selling crypto using fiat currency (like US dollar to Bitcoin). The process, however, isn’t difficult, as it just involves a few steps until you can buy or sell the cryptocurrency of your choice.

Similar to stocks and other financial markets, trading cryptocurrency can be daunting and complex, so before starting off, you should understand how blockchain technology and the market involved in trading crypto works. If you’re ready to venture into crypto trading, there are six steps to follow and we’ve detailed them in this complete guide on how to trade crypto..

Pros & Cons of Cryptocurrency

Cryptocurrencies are highly volatile, so it’s very common to see Bitcoin prices fluctuate over 10% in a single day. This is a great opportunity for high-risk profiles to make a profit quicker with crypto trading.

But is crypto worth investing? Or is it something for you? If you can handle volatility and are okay with the risk of loss (in case you can’t access your crypto wallet or private key) and security, cryptocurrencies have high return potential (oftentimes higher than the stock market), it gives users anonymity, and it’s very accessible and versatile–it only takes a few minutes to trade and transfer Bitcoin or any other crypto. 

Bottom Line on Deflationary Cryptocurrencies

In short, deflationary cryptocurrencies are digital assets with limited or decreasing supply over time. In other words, the number of units – or tokens – doesn’t increase at all, or if it does,  increases very slowly. As a result, the value of each coin rises as long as the demand remains consistent. 

Deflationary cryptocurrencies are often classified as assets that protect money from inflation. With a limited supply and high demand, its tokens increase value–as opposed to inflationary currencies, in which its increasing supply lowers purchase power. 

With more than one-third of U.S. small businesses accepting virtual payments, cryptocurrency is gradually making its way to the mainstream. But when we evaluate the pros and cons of cryptocurrency, we realize that the crypto market isn’t as stable as traditional financial markets. 

The 2022 crypto crash is the most recent example of how unpredictable the virtual currency market is. However, despite the volatility, crypto is still a highly attractive investment avenue for small businesses. Even public companies including Tesla and MicroStrategy, both Fortune 500 companies, have invested billions in Bitcoin and other fast-growing cryptocurrencies. 

So while cryptocurrency is all the hype nowadays, should you dip your toes in the water too?

What are the Pros & Cons of Cryptocurrency?

Is cryptocurrency a good investment for your small business? Should you start accepting virtual payments? These questions can only be answered when you weigh the pros and cons of crypto against each other and analyze their implications on your unique SMB. The table below gives an overview. Continue reading for an in-depth analysis of crypto investments.

Pros

Cons

• Inherently secure technology
• Decentralized 
• Can be traded 24/7
• Works globally
• Offers high accessibility and liquidity
• Highly transparent
• High return potential
• Inflation-resistant asset
• Helps diversify portfolio

• Highly volatile market
• Unregulated
• Transactions are irreversible
• Not widely accepted
• Commonly used for criminal purposes
• Complex to understand 
• Vulnerable to cyberattacks

Pros of Investing in Cryptocurrency

Investing in crypto brings a host of advantages. These include everything from highly secure transactions to trading markets that operate round the clock. Let’s take a look at each of these pros and discover them in detail. 

Inherently Secure Technology

Cryptocurrency is an application of blockchain technology, which is based on the principles of security and transparency. A blockchain is a decentralized record of transactions that shares each transaction with every computer present on its network. Every piece of information or transaction is shared across the blockchain, making it a highly secure and reliable store of data. 

You can only make a transaction on the blockchain with your unique private encryption key. Once you make a transaction, it can never be erased from the blockchain. Unlike fiat money, you can’t create a counterfeit cryptocurrency. This decentralized security mechanism makes crypto a good store of value. 

Decentralized

The traditional financial system, including stocks, bonds, and currency markets, involves each transaction going through a central regulatory body. This means you have to trust a bank or financial institution when carrying out every transaction. This also means you don’t have full control over your assets.

The crypto market is decentralized in nature. There are no third parties or intermediaries involved and you are free to carry out transactions peer-to-peer. As a result, you have greater control over your assets and don’t have to pay payment processing fees.  

Can be Traded 24/7

Cryptocurrency is not bound by the limits of time and space. Apart from being accepted internationally, and maybe even on different planets, cryptocurrency can be traded 24/7. While conventional financial markets follow conventional working hours, crypto markets operate at all times. So if you want to trade capital assets after office, trade crypto. 

Works Globally

As mentioned in the section above, crypto isn’t bound by the limits of space. In other words, it works across borders and is a great solution for multinational businesses. Using virtual currency, you can transfer handsome amounts of crypto to another corner of the globe without having to worry about heavy international transaction fees and exchange rates.

Bitcoin or any other cryptocurrency does not belong to a single country or government. Nor are crypto transactions overseen by any country’s central bank. This makes it a much better international payment method.

Offers High Accessibility and Liquidity

Anyone can enter the crypto market with any amount of money. As far as accessibility goes, you can invest in cryptocurrency anywhere as long as you have an internet connection. There are plenty of crypto exchanges out there for you to use. 

When it comes to liquidity, the crypto market does offer a fair amount of freedom, especially because they’re tradable 24/7. However, it depends on the token you chose to trade. For instance, Bitcoin and Ethereum are two of the most liquid digital assets out there. Smaller cryptocurrencies can be less liquid. 

Highly Transparent

The increasing distrust in banks and other financial institutions is one of the reasons why more investors are turning towards the digital currency market. Crypto offers more transparency, as well as user anonymity than any other investment.

Crypto investors can be identified with public keys. Every user has a unique public key one can be use to identify every transaction on the blockchain. This means although their real names aren’t shared, transactions can still be tracked for transparency. 

All the transactions are permanently viewable on the blockchain. This not only gives you greater transparency but all data is also safe from breaches and fraud due to secure blockchain technology. 

High Return Potential

Crypto can turn people into overnight millionaires. There’s no doubt about that. But there’s also a high risk associated with it. 

The market is very volatile and can make huge upward movements in very short periods of time. For example, Bitcoin was priced at a mere $975 in March 2017. It only took a few months for it  to increase to $20,089 in December of the same year. And from 2018, it rose to an all-time high price of $67,500 per Bitcoin in August 2021. 

Don’t forget that the same digital currency crashed down to $30,000 in May 2022. So while there is potential for high returns, there’s potential for big losses too. But smart investing and technical analysis of each digital asset allows you to capitalize on the high returns while staying safe from losses.

Inflation-Resistant Asset

Cryptocurrencies do not belong to a single country’s economy or currency. Instead, they are a global store of value that helps investors deal with national inflation. Plus, national inflation is fuelled when central banks decide to print more currency. This is not a problem with virtual currencies because they have caps on the total supply of each currency. In fact, most cryptocurrencies are deflationary, which means they either reduce or limit their supply over time.

Some cryptos have absolute caps and some have yearly caps on how many units of a virtual currency can be coined. This helps make crypto a great inflationary hedge that small and large investors alike can invest in. 

Helps Diversify Portfolio

If you already have invested in conventional capital assets like stocks, bonds, and fiat money, investing in crypto can be good for portfolio diversification. The market is rapidly growing and a  lot of quality assets are emerging with unique use cases. Small businesses should invest not only because of diversification but to attract new customers who prefer virtual payment systems. 

Cons of Investing in Cryptocurrency

We’ve seen plenty of overnight billionaire cases in the crypto world. But what we don’t realize is that more than half of cryptocurrency investors end up making a loss. This suggests that there are definitely more cons to investing in cryptocurrency than there are pros. 

But that’s not the most accurate conclusion. In reality, most crypto investors end up underwater because they invest following a hype without technical analysis. Let’s look at the cons of investing in crypto to get a clearer picture. 

Highly Volatile Market

The volatility increases the potential to make huge profits but can also lead to huge losses overnight. Most virtual currencies including BTC have a cap on the maximum number of units that can exist ever. For Bitcoin, that limit is 21 million BTC. This gives it the attribute of absolute scarcity, which also means the only force driving BTC’s value is its demand. 

With no supply force to balance out the changes in demand, most cryptocurrencies are extremely volatile. Plus, rumors and economic and geopolitical events have a profound effect on crypto markets. It’s only advisable to invest if you have a sharp eye out for global economic events and can act quickly to mitigate potential losses.

Unregulated

Decentralization has its pros and cons. When it comes to the cons, the fact that cryptocurrency is not regulated by any government means investors are not protected by the law in case they fall victim to fraud. 

Moreover, several countries including Qatar, China, Russia, and Bangladesh have placed bans on crypto. You can lose access to your investments if your country decides to ban crypto too.

Transactions are Irreversible

Crypto transactions are irreversible and final. This means if you send funds to the wrong crypto wallet, there’s no way to recover them unless the receiver agrees to send them back. 

You can also permanently lose access to your cryptocurrency if you lose your private access key. There’s a very low chance to recover your crypto assets if you lose them by error, or if someone steals them. 

Not Widely Accepted

Bitcoin, the world’s first cryptocurrency, was introduced in 2009 but it’s still a relatively new form of payment. It’s no wonder that it isn’t accepted as widely as cash or debit cards. 

Cities like Miami, Florida, and Amsterdam in the Netherlands have a considerable number of BTC ATMs and vendors that accept crypto payments. But the overall transition toward a virtual payment system is moving sluggishly. Ultimately, you will have to convert your crypto back to fiat money to make most purchases whether you’re buying for yourself or your business. 

Commonly Used for Criminal Purposes

The anonymous nature of crypto transactions makes it virtually impossible to trace them back to a real person. This is why black-hat hackers, scammers, and other criminals use crypto to receive ransom payments. 

Scams are also rife in the crypto world with dozens of phony projects offering huge returns for making a small investment. You should to move with extreme caution and always double-check online reviews before making an investment decision.

Complex to Understand

It makes financial sense to understand a capital asset and how it works before you invest in it. Not to say that fiat money and stocks are easy concepts to get your head around, but cryptocurrency has a touch of technological complexity that makes it hard to understand. This is especially true for many conventional investors.

Vulnerable to Cyberattacks

Blockchain technology is secure, but not entirely. You still need to take adequate measures to keep your digital assets safe including keeping your private key safe and storing your assets in a crypto wallet. 

Your virtual currency holdings are vulnerable if you leave them on a crypto exchange or if you lose your private key. Cybercriminals can also target you with phishing or malware attacks in the absence of adequate cybersecurity. 

Should Small Businesses Invest in Cryptocurrency? 

Good financial health helps businesses survive tough times. You should always consider whether you have the financial freedom to invest in an asset before you commit funds to it. 

Cryptocurrency is no doubt a good investment avenue, but only after you’ve analyzed the market and your business’s position. Whether it’s a good decision to invest in cryptocurrency depends on several factors including your financial situation, the type of industry you’re in, your location, and your target market.

Consider Your Financial Health

When done after a thorough technical and risk management analysis, your investment in Bitcoin or any other digital currency is likely to be profitable. But like any other asset, there is always a chance to go underwater. Follow the golden investment rule to only invest the money you can afford to lose. If you feel your business won’t be able to survive if you lose a particular amount of money, it’s better to not invest.

Consider Your Industry

It makes sense to see if your business can benefit from a crypto investment according to the industry you’re in. For example, it makes more sense for an ecommerce company to invest in crypto than it does for a barbershop. Evaluating the benefits of crypto industry-wise will facilitate your decision. 

Location

We can say that crypto is global and decentralized, but that is just theoretical. When it comes to the ground reality, it’s evident that some countries and cities are far ahead in adopting virtual currencies. For instance, a business in San Francisco or Miami would benefit more from adopting crypto because the cities are two of the most popular crypto hubs.  

Target Market

Small businesses that want to target the younger or more tech-savvy customer demographic can attract new customers by investing in crypto. 

Benefits of Accepting Payments in Crypto

If your small business invests in cryptocurrency, you should also consider accepting payments in it. There are quite a few benefits that can help your business grow if you start accepting virtual payments for your goods or services.

• Fast transactions: Quicker transactions lead to a better customer experience. This can especially help if you have to deal with international bank transfers. With cryptocurrency payments you can complete cross-border transactions in minutes instead of days.
• Lower transaction fees: Since there are no intermediaries involved, crypto transaction fees are much lower than other forms of payment. If you accept credit card payments, you incur fees of almost 25 cents with each swipe plus a 2-4% charge on the total amount. Accepting virtual currency can take this down to less than 1% per transaction.
• Merchant protection: All transactions are irreversible and this is advantageous from a business standpoint. The decentralized nature of crypto protects businesses from fraudulent chargebacks. 

• Increased sales: Accepting crypto helps SMBs to expand their reach to a much bigger customer demographic. A business can target international customers who couldn’t purchase their offerings previously due to international payment constraints. This will also attract younger, more tech-savvy customers to your business. 
• Convenience for customers: You can offer your customers additional payment methods by accepting cryptocurrency. This not only provides an extra layer of security but also adds to your overall customer lifetime value.

Bottom Line on Pros & Cons of Cryptocurrency

Generally, there’s a lot that cryptocurrency can help small businesses with. This includes improving customer experience, increasing sales, and expanding your reach. But it also has plenty of drawbacks, the most glaring of which are market volatility and lack of regulation. Ultimately, the better decision for your business depends on how crypto can help your business grow and whether you will be able to deal with the associated challenges.

Disclaimer: The content of this post is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for educational purposes only and does not take into account your individual needs, investment objectives, and specific financial circumstances.