Better than Bitcoin? Can cryptocurrencies beat inflation?

14 Pages Posted: 24 Nov 2021

See all articles by Ester Félez-Viñas

Ester Félez-Viñas

University of Technology Sydney

Sean Foley

Macquarie University

Jonathan R. Karlsen

The University of Western Australia

Jiri Svec

The University of Sydney - Discipline of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 18, 2021

Abstract

Unlike Central banks, cryptocurrencies can easily adjust their inflation rate with simple changes to code. Bitcoin, with a finite eventual supply of tokens, is increasingly gaining acceptance as an alternative long-term digital store of value with similar anti-inflationary characteristics to gold. However, recent innovations on the Ethereum blockchain have shown that it is possible for cryptocurrencies to become deflationary ¬– specifically through the destruction of transaction fees. With up to half of the networks blocks destroying more Ethereum than is created, the notion that Bitcoin offers the best inflationary hedge among the cryptocurrencies is increasingly coming under threat. Such protocol improvements could pave the way for more cryptocurrencies to improve their anti-inflationary characteristics, becoming better stores of value than Bitcoin.

Keywords: Bitcoin, Ethereum, cryptocurrency, deflationary, gold, inflation

JEL Classification: E31 G18 O31 O32 O33

Suggested Citation

Félez-Viñas, Ester and Foley, Sean and Karlsen, Jonathan R. and Svec, Jiri, Better than Bitcoin? Can cryptocurrencies beat inflation? (November 18, 2021). Available at SSRN: https://ssrn.com/abstract=3970338 or http://dx.doi.org/10.2139/ssrn.3970338

Ester Félez-Viñas

University of Technology Sydney ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Sean Foley (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
0417702600 (Phone)

Jonathan R. Karlsen

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

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