Federal Reserve Printing vs. Bitcoin MiningUnlike Bitcoin (BTC) and other cryptocurrencies, the Federal Reserve maintains centralized power to mint, loan, and manipulate the value of the United States dollar (USD). Bitcoin is designed to overcome this problem. There is no centralized bank or financial institution which mints bitcoins and loans them out to governmental treasuries or other financial institutions. On the contrary, Bitcoin is designed using distributed ledger technology — commonly called ‘blockchain technology.’ Blockchain technology operates by allowing peer-to-peer (P2P) transactions to take place without the need for third-party intermediaries like the Fed. New bitcoins are mined using cryptographic algorithms operated by a distributed series of nodes across the planet. Miners are rewarded with bitcoins for the work they put into solving the algorithm — creating new coins in turn. Nonetheless, there is a fear that Bitcoin’s Proof-of-Work (PoW) mining protocol may lead to centralized production. The machines required to mine are expensive. Furthermore, they require a large amount of electricity which adds another cost. This means that the ability to mine may be limited to a small number of ultra-rich miners and mining pools. Not all cryptocurrencies suffer from this problem, however. New consensus algorithms are being released and tested which may overcome the problem of centralization.
What About Inflation?While Bitcoin may be unable to overcome the problem of centralized production, it may still solve the problem of inflation. Inflation is defined by two primary phenomena:
- An increase in the average price of commodities, good, and services over time.
- A decrease in the purchasing power of a currency.
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