Of the many differences between cryptocurrencies and fiat currencies like dollars, euros, and yen, one stands out in particular: money supply!
There is no hard limit on the supply of fiat currencies. In the United States, the Federal Reserve creates money by buying treasury bonds from banks. The European Central Bank operates in a similar fashion. In these systems, central banks develop policies for limiting the money supply to counteract inflation and influence the economy.
On the other hand, most cryptocurrency developers designed their coins to have a definite, limited supply. Bitcoin, the world's best-known cryptocurrency, operates in this way. This makes Bitcoin and the cryptocurrencies based on Bitcoin much like gold.
There is only a certain amount of gold in the world. Much in the same way miners dig gold out of the ground and introduce it to the market for profit, Bitcoin miners create new bitcoins up to a certain fixed number, at which point they are expected to operate the network in return for transaction fees.
But PIXV has an unlimited coin supply. Does that make it closer to a fiat currency than other cryptocurrencies?
Not quite.
While the PIVX money supply system is technically unlimited, it is practically self-stabilizing. Let's look into exactly what means.
Unlimited Coin Supply and Perpetual Emission
PIVX has no miners, so it does not have to set up a system for incentivizing them through transaction fees. The PIVX network creates new coins at a constant rate of 5 piv per block, allocating a certain amount to an internal treasury that keeps the network running and the rest between users.
But at the same time, PIVX still charges small transaction fees. Since these fees are not going to miners or to other parties in the PIVX network, there is no incentive to make them any higher than is strictly necessary.
But what distinguishes PIVX from both fiat currencies and other cryptocurrencies is not the lack of miners - it is what happens to those transaction fees.
Because the network is already maintained through the PIVX treasury allocation of each block, the fees simply burn.
Yes, the PIVX system destroys money with every transaction.
How Does This Work?
Both setting hard coin supply limits and burning transaction fees are deflationary practices. The major difference is that developers need to set a hard coin supply limit from the start of a cryptocurrency's existence and hope to get it right by the time the coin itself matures.
With so many unknown factors at play, it's almost impossible to imagine that Satoshi Nakomoto - the alias of Bitcoin's developer(s) - could possibly predict the eventual demand market for Bitcoin. But the coin limit must be set from the very beginning to have any effect.
Transaction fee burning, however, can take place at a measured pace. It can also be adjusted to meet future market demands. Currently, the inflation rate of the piv goes flat at 15 transactions per second - meaning that coin supply coin supply is now a function of coin demand rather than an arbitrary value.
Additionally, there is a difference between coin emission factors for stakers who earn coins using normal piv or the zPIV minting process. The fact that minting new coins comes with a higher burn rate is a further hedge against inflation in a system where piv already exists.
Why Would You Destroy Money?
At first, this idea seems preposterous, but it makes sense within an active economic system - and it happens every day.
Nobody in their right mind would set their life savings alight in a bonfire, but value does get destroyed every day. Not only that, but the products and service you purchase with money disappear, wear out, or get thrown away.
This feature is an important element of every healthy money supply system in history. The fact that it does not exist in most cryptocurrency markets is a key oversight that may lead to instability down the road. This never happened with gold because there is still a large amount of unmined gold in the world.
However, the Bitcoin network has already reached 80 percent of its total coin supply capacity. Experts disagree about what will happen when it finally reaches 100 percent. Uncertainty and instability are likely, and the long-term results will probably become a fiduciary history lesson for future generations.
PIVX has taken a cue from the world's fiat currencies, but avoided creating a convoluted system like that of the Federal Reserve. Its unlimited coin supply is a feature of elegant simplicity that will give it the stability it needs to remain relatively involatile in the long-term. Prices will remain stable as long as users continue to use the network and create new coins.
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