Op-Ed: How Inflationary and Deflationary Monetary Systems can Compliment Each Other

Executive Brief

By interconnecting inflationary and deflationary currencies we can allow free market forces to dictate inflation or deflation, as opposed to the current standard of central figures making what can be arbitrary decisions on which way to direct the economy. Backing inflationary currencies with deflationary currencies, and providing a gateway for people to freely exchange back and forth will aid the free market in naturally settling upon what interest rates should be. This would signal an end to the era of perpetual growth based on central fiscal policy, and the sometimes deceptive ways of measuring economic progress.

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In times of hyperinflation, it is all too common for elected or appointed policymakers to try and print a country's way out of debt. But by creating more money, they are simply introducing more dollars to a market which will still have the same amount of goods. Without a corresponding increase in the amount of goods that country is producing, all this does is make everything very expensive. But what if instead of trying to print their way out of debt, the country tried to deflate their way out of debt? By backing an inflationary currency with a stake in a deflationary one, an organization could effectively transform that inflationary currency into a commodity money. As the price of that limited commodity rises, so does the currency, and barring they don't keep creating money out of thin air, their people who hold the currency will enjoy increased purchasing power. This is how nations can begin to reverse their perpetual debt trend. A dollar will actually retain it's value, and those looking to debase a country's currency had better start looking for another angle.

DNotes has been operating a semi deflationary cryptocurrency for nearly 4 years now, with no major blockchain problems. This semi deflationary proof of work scheme was set to release currency several hundred years into the future with a very gradual rate of reduction in the incoming supply, to help ensure miners were fairly paid. The main benefit to this decision was that long after miners lost incentive to process transactions for other networks, DNotes would still be giving them a fair deal. Another advantage to this fair incoming supply is that DNotes has not experienced the same hyper volatility that has propelled cryptocurrencies with a highly restricted incoming supply, from negligible market caps to billion dollar sensations overnight; quite often on zero fundamentals. It should be noted that while proof of work currencies are usually a great means of equitable distribution, over rewarding miners causes constant sell pressure on your currency as they liquidate to cover electricity and hardware costs.

This drove a need for DNotes 2.0 to be based on the more environmentally friendly alternative to proof of work, called proof of stake. Proof of stake doesn't require huge amounts of computational power to participate in the process of new currency generation, all you need is a stake in that currency, and a wallet to stake it in. Instead of new units of currency being rewarded to miners, new DNotes will be rewarded to the people who already own DNotes, which gives high incentive for saving. So by beginning as a POW currency, DNotes ran a fair and equitable distribution where anyone in the world with access to the internet could participate. However this fair and equitable distribution did come with a short term price hit due to high levels of miner liquidation, when compared against those who had a more dictatorial style of distribution.

DNotes stakeholders have demonstrated their extreme loyalty, and will enjoy all the benefits that switching to proof of stake will offer. Even though DNotes 2.0 is inflationary, I would not expect any widespread devaluation, because DNotes can not be created out of thin air, the incentive to hold is too great, and the thousands of people who already own DNotes are fiercely loyal.

Author: Brandon Cheliak

Education Director for DNotes and co-founder of DNotesEDU

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