Stop Calling Bitcoin Deflationary.

Bitcoiners reject inflation. We believe it represents a regressive, silent tax — slowly siphoning wealth from the average person to the politically well-connected.¹

In response, Bitcoin critics claim that while inflation may be frustrating, the alternative is much worse, a stagnant deflationary economy.

This article will: (1) begin by laying a conceptual foundation for what deflation is, (2) move on to address critics’ concerns with falling prices, and (3) conclude by showing how Bitcoin’s monetary supply actually guards against deflationary spirals.

Part One: Bitcoin is not deflationary — its money supply is relatively constant.

First, we need to establish what “deflation” refers to. While decreasing prices are colloquially referred to as deflation, deflation is formally a decrease in the supply of money or money substitutes. This is an important distinction. Deflation is not a decrease in prices itself, but a monetary phenomenon that sometimes causes decreasing prices.

In this sense, Bitcoin is not truly deflationary. Bitcoin’s supply will not decrease but will instead continue to increase until the block rewards run out sometime around 2140. At that point, Bitcoin will reach a hard cap of 21 million coins.