Does Infinite supply of Telos Coins also mean Infinite Inflation?
Until this year, when ever I was looking at a new cryptocurrency, I was always looking at what is the total supply of coins going to be, and if it said, infinite or not defined yet, I always thought that was a bad thing. But actually, Infinite supply might be better than defined amount.
While I am talking about Transcendence networks Telos Coin specifically in this article, the following can be applied to any other cryptocurrency with infinite supply.
Question was: If there is infinite supply of Telos Coins, does that also mean Infinite Inflation?
Answer is Yes and No at same time, and even when yes, probably not the way you think.
Just to clear this a bit, think of any FIAT currency like Euro or USD. they all have infinite supply of coins as they keep printing more money every year and they do have infinite inflation as well. Is this a big problem? usually not that much.
In case someone does not know what Infinite Supply means, let me explain that first.
In BitCoin it works so that each found block contains certain amount of coins - 25 BitCoins currently. At later point, this amount is going to decrease to 12.5 Bitcoins each block, and then halve again, and again, and again, until finally, there will be 21 Million BitCoins in existence in total. And there will never be anymore than that.
Some other coins, like Telos, have took a different road. In Telos case there is new block found precisely once in a minute, and this block will contain 200 new Telos Coins.
Because this will continue this way forever (unless it is voted to change), this basically means that even million years later, there will still be coming 200 new Telos Coins every minute. That means, there is going to be Infinite Supply of Telos Coins, since there will always be coming new ones. just like there are going to be new Euros and USDs coming.
What I erroneously thought before was that if there is going to be infinite amount of New Coins coming forever, then the inflation would be going up forever too, and I thought that would be terribly bad thing. But actually it is not that bad at all, but even a good thing, as you will see too after reading this and the follow up article.
How much inflation is there in Telos?
Lets start from beginning. I will not take into account the real first days of Telos Coin, when there were actually different amount of Coins coming each block, but for simplicitys sake, I will use that Telos Coins have always came with same speed, since that is anyway from practical point of view right.
Because there comes 200 new Telos coins every minute, that means there comes 288 000 coins per day.
As we are now at about day 100, we have roughly 30 million Telos Coins in existence, and this is a good moment to look at inflation.
After first day, as mentioned, we would have 288 000 Telos Coins.
- After next day, we would already have 576 000 Coins, which means that from coins amount point of view, we would already have 100 percent inflation rate.
- Go to day 100, and we have 28,8 million coins, and 10 000 percent inflation rate.
- After a year, there be roughly 100 million coins, and 36 500 Percent inflation.
That sounds pretty bad!
However, First of all, notice that we were comparing these coins to the first days amount of coins, and also, we were simply comparing this to the amount of coins available.
If you compare for example to day 100 situation, then on day 100 we have 28,8 million coins, while day 101 we would have 29,088 million coins which would make only 1 percent inflation compared to previous day, instead of steps of 100 percent like when comparing to day 1.
After a year, we would still have a whopping 365 percent inflation when we compare to day 100 coin amount.
And similarly it continues depending where we compare it to. Compare to situation after year one, to situation after year two, and you are still seeing 100 percent inflation.
But day by day, the inflation rate keeps going down, and finally when we get to year 50, then after a year we have only 2 percent inflation, which might well be around same as FIAT currencies inflation every year, and at year 100, we are actually doing better than FIAT currencies already.
As you can see, the inflation problem is only at beginning, not at end anymore. Further from beginning we get, less of a problem it is.
However, if we would do same to for example to USD, that we would suddenly give them even 365 percent inflation rate for one year (which is basically Telos situation from todays day 100 to one year), that would be pretty catastrophic already.
This however is not true with Cryptocurrencies, since they are not in same situation as for example USD.
What is the difference with Inflation between FIAT currencies (USD, Euro) and Telos?
With USD the problem is that it is basically already used by maximum amount of people, and therefore only way there can come more users to USD, is by more people being born, which is a slow process.
As there comes more people, more USD are being printed, so that there would be roughly same amount of USDs available for each people.
That, lets say there would be 100 people in whole world, and then each one would have 200 USD. This would mean that there would be 20 000 USD needed.
If there then would come 5 more people, making total people in world to be 105, then 1 000 USD more would be printed, and total of 21 000 USD would be needed in the world. This is basically the idea behind a situation when more USDs are being pressed.
And for this reason high inflation to USD would be a killer for its value, since amount of users would not increase much,only the amount of USDs available would.
With Cryptocurrencies, situation is very different. Cryptos dont automatically have all the people in the world, or some certain clear portion of people using them, but number of users increases based upon the success of cryptocurrency and cant be clearly defined.
Therefore to use Telos Coin as example. If on day 1 there is 1 user, then it means one user has 288k coins.
To keep coins inflation at 0, it means there needs to be 2 users by end of day 2, which would mean that there be 576k coins and divided by 2 users, it means there are 288k coins per user, just like there was on first day.
Similarly on day 3 there would need to be 3 users, day 4, 4, and so on..
If this rate can be kept, that there comes one new user each day, then 10 years later there would be 3 650 users, and they would each have 288k coins. Which means that as long as Telos gets exactly 1 new user each day, then the inflation rate stay at 0, which means that the coins value stays exactly same.
This of course supposing each user uses exact same amount of money etc.
However, suppose on day 100 there suddenly comes 200 more people. This means that on day 100, there would be total of 300 users. This would mean that suddenly each user would have only 96k coins anymore, which means the price is basically tripling and will happen the exact opposite of inflation.
If after this day 100 rush, we again get only one new user per day, then inflation would be kicking in, since to stay on inflation rate 0, we would need 3 people per day again to support the 96k coins per user situation, and anything less, would mean inflation as there is more money coming than there are users for the current amount.
As example, looking this before mentioned situation, by end of year we would have 565 users and there would be a total of 105 Million Telos available for them. Meaning there would be 186k coins for each user, resulting in roughly 100 percent inflation rate from day 100 to day 365.
How then to fight against the inflation in Cryptocurrencies?
By other words, in Cryptocurrencies it boils down to what speed new users come.
The very beginning is somewhat easy, It is not hard to get 1 new user from day 1 to day 2, therefore the 100 percent inflation not being a problem at all.
But problem is if lots of people come in at some point. At later point they come in, the less impact they have, as from year 1 to year 2, you are only trying to double the user base.
But say there would come thousand people inside already the first day. That would mean that to maintain coins value in steady pace supply, there would need to be 365 000 people at end of year, and that is only to keep the price same, no increase or decrease on it.
If this thousand people rush happens on day 2, then it is already much easier, since then you would only need roughly 180 000 new people to join before end of year, but that is still a lot of people.
Rush on day 10, and we are already down to only 36 500 people by end of year.
All in all, a slow start can be a good thing for a coin, and early rush can make inflation run real high.
For it is balancing against a hyperinflation at beginning.
It is only several years later that you dont need to worry much at all anymore, as example after year 10, the amount of total coin supply increase will only be 10 percent anymore, hence even if not a single new person would join the coin, the yearly inflation rate would still be only around that same 10 percent, instead of several hundred percent, like at beginning.
I would even say that first year is the most critical time, since during that time the inflation is very high all the time. After going to second year things start getting much easier, for although user base is still in need of doubling from year 1 to year 2, we are still talking of only 100 percent inflation instead of 365 percent inflation, like we are basically talking right now at day 100 still.
Telos has one more trick in fighting against Inflation
However, there is actually another thing still in Telos that is keeping the inflation rate down that I am going to be writing in another article. It is the cost of transfers which are actually being destroyed from circulation.
It might seem like a small thing, but when you combine that with the infinite supply, you will notice a very clever little system that is able to answer to different kind of market situations as well as make the infinite supply not produce infinite amount of coins, but there actually is a cap to amount of Telos coins existing, it is just not defined, but is a flexible one.
But more about that in next article that will also finish this one.
If you got curious about Telos Coin,
you might like to read another article of mine about it: https://email@example.com/3-main-fears-that-investors-have-towards-new-cryptocurrencies-and-does-telos-coin-pass-them-8a9ad0df70fe
Or maybe read MightyMickes short article about it on Steemit: