Steemit Crypto Academy Contest / S9W3 - STEEM Inflation.

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Hello everyone, I hope you all are doing well, and enjoying your happy & healthy life. I am here to share my participation in the steemit engagement challenge season 9 week 3. I always try to participate in steemit crypto academy as I learn new things each week that I didn't know before.

Use your own words to explain the concept of inflation in general and does it affect cryptocurrencies.

Inflation is the increase in prices either of goods or cryptocurrencies. Inflation means there is an increase in the price of any good which we want to buy and becomes costly for us with time. As with time, there is an increase in US dollars price in Pakistan and its buying rate is becoming less in Pakistan due to continuous increases in its rate.

The price of US dollar was 180 or around 200 Pkr but now it's price increase to 283 Pkr. The same is like in other fields, goods are becoming costly day by day and customers' purchasing rate is decreasing. So, it's an economic concern and we have to get a solution to it.

Affect on cryptocurrencies

• Yes, inflation is affecting cryptocurrencies as well as other goods. As we all know cryptocurrency worlds on the principle of supply and demand, the more there will be demand for cryptocurrency the more will be supply of them & there will be an increase in cryptocurrency price with increasing demand & supply.

• If cryptocurrencies are not common for everyone then there is raise in their price due to scarce sources of it but if everyone has cryptocurrency in common then there will be a decrease in their price like we are facing an issue in Steem price.

• So, the inflation rate also affects cryptocurrency. There will be a raise or fall in cryptocurrency prices as the inflation rate changes every year.

Explain the difference between deflationary and inflationary cryptocurrencies. And clarify what is the strategy followed by the Steem token and show how it works.

Deflationary cryptocurrencies mean that there is reduced in the supply of cryptocurrency with time. There are some assets produced in sometimes at the start the supply-demand increases but with time started decreasing due to which the supply of the asset will reduce and even the assets will be scarce. To prevent this from occurring we have to do something like burning off those assets so that their demand will increase again with time.

Inflationary cryptocurrencies means those cryptocurrencies whose supply is increasing with time. It's the opposite of deflationary cryptocurrencies. In inflationary cryptocurrencies, there is an increase in the supply of cryptocurrency assets and thus new tokens or assets will be produced.

So, by inflationary cryptocurrencies, there is an increase in the production of new tokens which will then be distributed to the crypto market as their demand increases with time. Due to this, there will be continuous production of new tokens and we can't fix the total supply of tokens in the market.

Strategy to Follow by Steem Token

• After explaining the above types of cryptocurrencies, we have got an idea that Steem falls under both categories as inflationary cryptocurrencies & deflationary cryptocurrencies as well.

• Steem is an inflationary cryptocurrency and its demand is increasing with time, I already discuss as more new tokens will produce which will enable us to calculate the total supply of Steem tokens as still, its supply is increasing. So, the Steem token is an inflationary cryptocurrency as well.

• But Steem tokens are deflationary cryptocurrencies as well because there are some initiatives stated by the steemit team to decrease its circulation in the market. Like we are doing burnsteem25 in each post to burn steem and decrease its circulation.

• Due to this steem tokens will be scarce in the market and their price will increase again. There is also a power-up & club initiative by the steemit team to reduce its supply & try to increase Steem's price in the future by burning it, joining clubs & powering up Steem continuously.

• So, we can say that Steem is an inflationary and deflationary cryptocurrency as well, as its supply increases with time but it also reduces with time to reduce its supply in the market.

Calculate the Current Inflation Rate (the day of preparation for publication),

For calculations of current inflation rate I get some help from our professor @kouba01 post. Thanks for sharing this as it was so helpful for me. While calculating the inflation rate there are some values which changes every day but the blocks unit production remains same everytime.

Here is the formula for calculating the inflation rate in which only header block numbers are changes with time all other values are constant.

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

For getting the value of header block we have to visit steemworld, open steemit info and get the number of header blocks which changes each day.

So, here the header block numbers are 74,424,095.

Inflation Rate = 978 - (74,424,095 /250,000) / 100

Inflation Rate = (978 - 297.69638) / 100

Inflation Rate = ( 978 - 297.69638) / 100

Inflation Rate = 680.304 / 100

Inflation Rate = 6.80304%

Here the inflation rate will be 6.80304%.

By tracking the rate of inflation for the next few years, interpret how easy or difficult it will be to earn STEEM rewards, and would that push you to build your SP right now?

For tracing the rate of inflation for next few years we have to use another mathematical formula & calculations. If the block rewards increase with time there will be easy for to earn Steem in future but if blocks rewards decreases with time then it will difficult to earn Steem in future. The formula for calculations is:

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

For getting the value of virtual supply we have to go to Steemworld again and open market info and get the value of virtual supply. Below the screenshot of this.

We have calculated the inflation rate already so the remaining value is to calculate the number of blocks per year. 1 block will be created within 3 seconds. So divided all the calculations with 3. Following is the method to calculate this.

Number of blocks per year= 3652460*60/3

Number of blocks per year= 31,536,000/3

Number of blocks per year= 10,512,000

So, put all the values in formula.
Virtual supply= 481, 618, 294.362
Inflation Rate= 6.80304%
Number of blocks per year= 10,512,000

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

New Steem = (481, 618, 294.362 * 6.80304) / 10,512,000
New Steem = (3,276,467.84097246048) / 10,512,000

New Steem = 3.1169

The new Steem calculated value is 3.1169, it means on each new produced block there will be production of 3.1169 Steem. The inflation rate decrease 0.01% per 250, 000 blocks and continues until inflation rate becomes 0.95%. As we know 1 block unit produced within 3 seconds so calculated it in days.

3 Sec = 1 block unit

We have to check for 250, 000 blocks unit so,

750, 000 Sec = 250, 000 block units

Convert seconds to days the value will be

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

Day = 750,000 / 86,400

Day = 8.681 Days

So, after calculations of these days we will get that there will be reduce in inflation rate 0.01% per 8.681 days.

For the 1 inflation rate, you can have it be

1 year inflation rate = (365/8.681)*0.01

1 year inflation rate = 42.0458 * 0.01

1 year inflation rate = 0.4205%

The inflation rate for 1 year is 0.4205%. Now I want to calculate for next 5 years then it will be.

0.4205 * 5 = 2.1025%

So 5 years from now, the inflation rate will decrease by 2.1025%. So, we will check the change occur within 5 years in Steem inflation rate.

5 years difference = current rate - change in 5 years

= 6.8030 - 2.1025

= 4.7005%

So, the inflation rate after & years will decrease to 4.7005% while the current value is 6.8030%. With decrease in inflation rate in coming years there will be scarcity of Steem tokens which would make it difficult for us to earn Steem. But it will also increase Steem price in coming years.

Building Steem Power

Yes, I would love to build my steem power as after these calculations we have found that there will be a decrease in Steem supply & demand and it's the right time to build your steem power for the coming years. The most successful will be those who have built more than 50K or 100K Steem power and will significantly affect the Steem ecosystem.

As Steem tokens will be scarce in the coming years. So, I would suggest everyone build their steem power and get more benefits as there will be a raise in Steem price due to its decease demand & supply with time.

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This was all about my participation, I would like to invite my friends @isha46, @faran-nabeel and @malikusman1 to share their participation.