Jul 27, 2021
Why is inflation a tax on the poor?
by Maryna Trifonova, Head of Content at Jax.Network
Inflation is a monster that waits around the corner for every grown-up. Unlike in childhood, you can’t hide from it under your blanket. It slowly eats away at your savings, moving you closer and closer to the edge of poverty. And the most ridiculous thing is that it’s totally legal, so you have no other choice but obey the rules of this “brave new world”, don’t you?
Effects of inflation
Various economists tend to criticize inflation rates and warn that prices will eventually become overheated. As a result, the purchasing power of regular people will decrease drastically. This argument may appear confusing to some of our readers, so let us give a simple example.
The average annual rate of inflation is set at 3.10%, according to this chart. It’s not that bad, right? Not until you realize that at that rate prices will double every 20 years. It means that your purchasing power goes down on a regular basis over many years. For instance, if you want to buy a house that costs $400,000, by the time you save enough money for that, let’s assume you need 20 years for that, inflation will eat around half of your savings, as the price of your dream house will double.
The first urge of every reader would be to make a conclusion that it’s better not to wait and buy the needed products now. Stuff the fridge with groceries with a long expiration date, buy clothes only on sale and for years ahead, etc. But is it a life you want to live? Even given all this trouble, such a lifestyle won’t save you from being poor. You will only postpone the process.
How to fight inflation
One would certainly want to know how to save funds earned over many years of hard work. Some may decide to buy gold and other precious metals as a hedge against inflation. However, these assets are also volatile, meaning you will gain nothing when their price decreases, especially in the short term. In the short run, you still need a tradable good that retains its purchasing power, since most of your money does not go to your savings account and is used for day-to-day needs. Equities may also seem a great hedge against inflation. Only imagine if you invested in Apple Inc. back in the late 1970s, when it was a small firm operating from the old garage. Although there is a huge risk too, as not every stock you invest in will skyrocket, as in the case with Apple Inc.
As you can see, holding or even investing your dollars will not help you save your money, not to mention become wealthier. But the progress is inevitable, as new technologies and business models come to the market. A concept of a digital currency stable in value, often called a stablecoin, was introduced only in early 2015, when Tether (USDT) was listed on crypto exchanges for trading.
A stablecoin can be pegged to a fiat currency, another cryptocurrency, or to an exchange-traded commodity, such as gold, for example. USDT is obviously pegged to the American dollar at a 1 to 1 rate. Soon enough, it became clear that USDT has the same inflation issues as USD and therefore can’t be used as a store of value. The graph below shows the constant decline of the USD purchasing power.
We at Jax.Network came up with a smart solution — a scalable yet decentralized stablecoin that is pegged not to an inflationary currency, but to the cost of hashrate used for its minting. It’s called JAX. We argue that it has lower inflation rates, compared to traditional fiat currencies, and doesn’t have centralization problems, like fiat-pegged stablecoins. On top of that, it has a practical use, as it is perfect for carrying out inexpensive day-to-day transactions, like paying for your lunch, and cross-border transactions, like paying bills to international merchants.
Conclusion
The rising inflation rate is a serious problem for all people, especially for those with modest incomes. It makes poor people lose purchasing power, i.e. become poorer. It’s like a tax that you ought to pay, no matter whether you want to do it or not. We offer you a way out of this cursed circle — JAX coins.
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