Inflation is defined as the growth in the money supply less the growth in the total value of goods and services in an economy. In traditional economies the Treasury is responsible for "minting" or "burning" money to ensure financial stability.
It is important to note that the growth in money supply does not necessarily lead to inflation if there's an equal growth in the value of the goods and services in an economy. In fact, it can be argued that an increase in money supply is required for a growing economy.
Just as an increasing money supply supports the productivity and growth in a traditional economy a productive and growing blockchain economy requires a growing native coin supply to support it.
A growing supply of the STX coin (e.g. mining rewards) will create incentives for more consumption and investment within the Rails Network and lead to greater productivity and value in that economy in the long run.
The Rails Network introduces a healthy inflation rate of 1-3% pa. The PoWbA consensus mechanism rewards the validators (mining pools) with a flat block reward + the block fees* and therefore pays for the work and security of the network.
With the combination of fees, and a growing STX supply, an optimum level of transaction load can be achieved. As the growing STX supply is distributed to miners, it creates an incentive to invest the mined coins back in the network (to offset the depreciation/inflation).
Despite many hours spent building models and simulations to finetune the Rails Network economy settings, there will be some things that can only be tuned while being live. Finding the optimum level of inflation is one of those things. The Rails Network open ended design will allow us to introduce deflationary mechanisms such as transaction fees/gas burning or regular future burns.
- Bitcoin - Supply Cap
- Ethereum - Inflationary
- Hoge - Deflationary
(*) Subject to change