Steemit Crypto Academy Contest / S9W3 - STEEM Inflation

Assalam-o-Alaikum

Hello everyone I hope you are all ok and enjoy the good life by the grace of Allah Almighty I am here for participate in the amazing engagement challenge which organised SteemitCryptoAcademy the name of this challenge is STEEM Inflation so let's start;

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

The word inflation is mostly used in our daily life but we should know it's meaning that inflation is called when the prices of the thing is increasing day by day with the passage of time the value of the currency is decreasing day by day with the passage of time because we can buy the same products with more amount of money

This is a general definition of the inflation and we can also see that many countries in the world are facing the problems due to the inflation in their country because things are very much expensive while the value of money is very much low for example if we have something at the start of the Year then the value of that thing is increased by the end of year so we can buy it with more money later

The inflation date is measured in different time periods in different countries some of them calculate the inflation date increase per year but some of them can also calculate this rate per month or even per day. There are so many reasons why the inflation rate increase in different countries and value of money is decreased

_{Picture is taken from Freepik}

So now i will be discussed some important reasons of increase of the inflation rate in financial currency the first reason is that the supply of the currency is increased very much that is why the currency become easily available for the public and its value is decreased because it's demand is not increased with the increase in supply

Another reason for the increase of inflation is that the supply of the things is reduced but it demand is not decreased so the things become rare and that's why the inflation can increase there is another reason of inflation rate increase which is the increase of the production price of things when this price is increased the manufacturer also increase the price of that thing

Does it affect cryptocurrency

Yes the inflation rate is also affecting the cryptocurrency because cryptocurrency is also an important part of the financial system now and like the Fiat currency the cryptocurrency is also affected by the increase in the inflation rate of the Fiat currency. The first effect is that the rate of cryptocurrency is increased when the inflation in Fiat currency is increased.

_{Picture is taken from Freepik}

There different cryptocurrency in the market and we know that the price of cryptocurrency is depend upon the supply and demand of that cryptocurrency in the market so if we consider the currency as an item then when it's supply is increased then is value is decreased and when it's value is decreased its value is increased actually.

The inflation rate can also affect the adoption of the cryptocurrency in different areas of the world because where the inflation rate is high then people prefer the cryptocurrency to invest because they think that they can avoid the high inflation rate in Fiat currency by investing in the cryptocurrency but when the inflation rate currency is low then they don't prefer the Crypto currency to investor.

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

Now I will be discussed the difference between the deflationary cryptocurrency and the inflationary cryptocurrencies so now first people discussed the inflationary cryptocurrency

Inflationary Cryptocurrencies

The first type of the cryptocurrency is the inflationary cryptocurrency in which the supply of that cryptocurrency is increased day by day by the passage of time so when the supply of that currency is increasing day by day then the inflation rate of that cryptocurrency is also increasing because we already discussed about that when any currency increase in supply than inflation rate is increasing

Now I will be discussing some reasons of the inflationary cryptocurrencies because how their supply is increasing day by day.

_{Picture is taken from Freepik}

Firstly reason of the increase in supply is that the block reward is fixed of that cryptocurrency so when the block rewards is fixed then same amount of crypto coins are added in the existing supply with the constant time period so in this way the supply of that cryptocurrency is increasing and it is inflationary.

Secondly the new tokens are created everyday and they are added to the previous existing supply everyday and in this way the existing supply amount is increasing day by day which cause the cryptocurrency and make it inflationary so due to these two main reasons the supply of the tokens is increased to make them inflationary cryptocurrencies.

Deflationary Cryptocurrencies

The second type of the cryptocurrencies is the deflationary cryptocurrency and this is the type of currencies in which the supply of the Cryptocurrency is decreasing day by day with the passage of time and hence they are become very much scarce in the future so that they increased in the value because inflation is decreasing day by day

Now I will be discussed a some of the reasons why the supply of these cryptocurrency is decreasing day by day so let's start.

Firstly the main reason of the decrease in the supply of these cryptocurrency is that the blockchain on which day is cryptocurrency are based took some steps to reduce the supply like the locking and staking of their tokens so when these tokens are staked or locked then they are not available in the circulation supply so it is reduced.

_{Picture is taken from Freepik}

Secondly the burning scheme that are used by these blockchain platforms to reduce the supply of that token because the tokens are sent to such address which are called the null or dead address so when these tokens are send to the dead address they are removed from the total supply of tokens so in this way the supply is reduced

Thirdly the reason of reduce in supply is that the mining rewards that are offered to the minors of the platform are reduced with the passage of time and with the reduce of this reward less amount of tokens are added to the existing supply and hence the total circulation supply of that tokens is reduced which make them the deflationary cryptocurrency.

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

Firstly the steem cryptocurrency is an inflationary cryptocurrency because the total supply of the steem coins is increasing day by day with the passage of time and I already discussed that the token which supply is increased day by day is an inflationary token

The supply of steem token is increasing in that way because when a content creator create a post on the platform then it is curated by the curator and both parties are rewarded with the steem tokens which are taken from the rewards pool where the tokens are added by the mining of new blocks

When a new block is added in the platform then 3 steem tokens are produced from it and these steem tokens are used later to reward the authors and curators of the platform in this way the circulation supply of steem token is increasing day by day because these tokens are added to it.

To control the pressure which is generated by the high supply of steem token there are many schemes which are followed by the steemit team just like the burnsteem25 and club initiation are these two schemes to reduce bulk of pressure which is produced by the creation of new steem tokens so in short we can say that steem token is an inflationary token and some deflationary schemes are also adopted to reduce the high supply pressure.

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

So now i will be discussed the method of calculating the current inflation rate of steem tokens so the below formula is used to calculate

current inflation rate = (978 - (head_block_number / 250000)) / 100

Other all things are constants but we will need the head block number which we can get from steemworld.org by going to the system info

_{Screenshot is taken from Steemworld}

The head block number is 74,322,127 which we will put in the formula and now we will get the current inflation rate

current inflation rate = (978 - (74,322,127 / 250000)) / 100

current inflation rate = (978 - 297.28) / 100

current inflation rate = 680.71 / 100

current inflation rate = 6.8071%

so we have calculate the current inflation rate which is 6.8071% at present time of creating this post.

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?

It is not easy to determine whether the difficulty level of the Steemit platform will increase or decrease in the upcoming years so we will do some calculations to get that if we will get high rewards in the future or low rewards in the future

firstly we need to calculate the new steem tokens that are generated by the block production at the current inflation rate and then we will compare these amount of steem in the future inflation rate to assume whether it is difficulty or easy the below formula will be used to calculate the new steem tokens produced on every block.

new steem tokens = ( virtual_supply * inflation_rate ) / (Number of blocks per year )

we already have,

current inflation rate = 6.80%

we can get the virtual supply from steemworld.org by going to the market info

_{Screenshot is taken from Steemworld}

so now i have also find the second thing which is the virtual supply

virtual supply = 481,304,409 steem

now we needed the third thing which is blocks per year and we know that one block is produced after 3 seconds and in this way we can calculate the number of blocks per year

no of blocks per year = (365 x 24 x 60 x 60) / 3

no of blocks per year = 10,512,000 blocks

now we have all three things which are needed in the formula so we will calculate the new steem tokens per block

new steem tokens = (481,304,409 * 6.80% ) / (10,512,000)

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new steem tokens = 3.1134 steem.

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we have calculate the new steem tokens at current inflation rate but now we will calculate the new steem at the inflation rate after one year so we will calculate the inflation after one year firstly,

we already knew this thing that the inflation rate was 9.5% at the start and it is decreasing at the rate of 0.42% per year so now we can easily find the inflation rate after one year we just have to subtract the 0.42% of current inflation rate from itself and we will get the inflation rate after one year

inflation rate after one year = 6.80% - 0.42% of 6.80%

inflation rate after one year = 6.80% - 0.028%

inflation rate after one year = 6.77%

now we will calculate the new steem tokens created after one block on this inflation rate

new steem tokens = (481,304,409 * 6.77% ) / (10,512,000)

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new steem tokens = 3.099 steem

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So from the above observation we can say that the rewards of the steem token will reduce when years past so in the future it will be difficult to earn the steem token because the block reward of the steem will decrease as compared to the current block reward

So if I am talking about growing our steam power at this time then it is very much profitable for us because in future the steem will become very much scarce and difficult to earn more steem after the passage of time

As the inflation rate of steem tokens will reduce the rewards will also reduce ultimately the value of steem will increase so if we will invest in the steem token now then we will be the ones which are in benefit in the future.

_{I invite the @malikusman1 @alihussain07 @steemdoctor1 @fantvwiki and to participate in the contest}

Thank you

Achievement 1

written by:@cryptoloover