Asset release
It is the emission of cryptocurrency that is the main obstacle to its legalization. This is the main topic of discussion in this area in the legislative assemblies of different states, both in Europe and in Russia.
An issue is the process of releasing a new asset onto the market. This could be money, stocks, bonds, or other securities. In relation to money, emission is a printing press that produces paper in a certain quantity established by the Ministry of Finance or other authorized body.
For example, the Russian ruble. Paper money, as well as coins, get lost over time, get torn, “get buried under the pillow,” in general, disappear from use. The Russian government is calculating the approximate volume of such losses, as well as its own need for paper cash. This amount is submitted as an order to factories that print banknotes and mint coins.
Roughly speaking, the number of rubles Russia needs is the number it will print. If people from, say, 1920 looked at this situation, they would have been shocked. After all, previously money was backed by gold and issued in accordance with reserves. Since the 1970s, this principle no longer works. Now we will make as much money as we want.
Is everything so good
It would seem that if the world accepted such a concept, then it should become richer. After all, the state can stamp banknotes and literally distribute them to the poor. But economics doesn't work that way. If you print paper for everyone, there will be too much of it. This brings us to the concept of inflation.
Inflation is the decrease in the value of a certain amount of money. A thousand rubles itself means nothing if it cannot be exchanged for goods. A thousand can only be exchanged for that product that corresponds to this amount, according to the market. When the state issues a lot of money, it loses its value, and less and less goods can be exchanged for one conventional thousand.
Product prices are the easiest way to understand the principle. Take, for example, a Snickers chocolate bar. 5 years ago, for example, it cost 20 rubles. And today it costs 30 rubles. Has Snickers itself gotten better over the years? No, it hasn’t changed at all; most likely, they didn’t even have time to change the equipment in the factories, not to mention the technology itself. But where did the difference come from?
Inflation did this. The state printed money, there was more of it, which means its value fell. It has reduced the value of your money and now you can afford less for the same amount. Having understood this, we return to the cryptocurrency topic.
It won't work with crypto
The only legal permission to manipulate the machine is with the state. And then a certain Satoshi Nakamoto appears, who says something like “Your computer is also a machine, take it and print money!” Will politicians like this? I don't think so.
This is where all these legislative prohibitions, obstacles in our wheels, and the need to do extensive coverage come from in order to convey information about cryptocurrencies to people. Crypto is also issued. The main method is mining. Miners run huge amounts of information through their farms. They are needed to keep the network running.
For this, the network rewards them with coins. The more data you were able to process, the more rewards you received. Until this point, coins simply do not exist. There are only special notes about their possible appearance, which are embedded in the program code of a particular cryptocurrency project.
Then the miners want to cash out what they have mined, turn it into classic money in order to somehow spend or invest. Then they go to exchanges and exchangers, where the coins are transferred to other people who are willing to pay for them in fiat, traditional money. This is how crypto gets onto the market.
How does emission occur?
Let's look at how cryptocurrency is issued. In order:
Developers create a new project. It is a cryptocurrency built on the blockchain.
They prescribe how many coins the network should release to the market
It also indicates how much data the miner must process in order to receive a reward. This is called blocks and hashrate
The miner connects his computer, installs programs and starts mining
His computer reads the information, thereby developing the network. The main task is to find the block in which transactions are embedded. When a block is found, the transaction goes through. That is, on the other side of the world, someone sent someone money
For each such block, the algorithm creates coins and rewards the miner
This is how crypto emission occurs
As you can see, the process is simple and contains virtually no opportunities for the state to control it. Plus, the income received in this way cannot be tracked, even with the proper miner skills. This means that it is also not possible to collect income tax from him. Hence the huge number of problems on the way to the legalization of Bitcoin and other cryptocurrencies.
Is there inflation here?
In theory - yes. In practice, so far, there is not enough historical volume to accurately track its appearance and the percentage of coin value it consumes. But the simplest principle applies: when there are many altcoins, they can fall into the hands of everyone, which means their value will decrease.
Therefore, Nakamoto, when developing the concept of Bitcoin, introduced a limited edition parameter. Currencies with limited emission are those that in their program code have a limit on the number of issues. If we take the same Bitcoin, it will stop at around 21 million coins. That is, as soon as the 21 millionth coin is released, the opportunity to increase the number of Bitcoins will disappear forever.
This parameter increases the value of each individual coin. Compared to traditional values, it is moving from paper money to gold. After all, the amount of gold is limited, which is why it is expensive. Most popular cryptocurrencies and tokens adhere to this principle.
Deflation
Another economic parameter emerges—deflation. Deflation is the reverse process of inflation. If in the first case the real amount of money decreased over time, here it, on the contrary, increased.
Bitcoin coins can be lost. For example, when users lose keys to wallets or passwords to their accounts on exchanges. Then the coins go out of use. It turns out that the same 21 million will gradually decrease, as well as the reserves of gold in the bowels of the Earth. And the real price of one coin will rise on its own, without trading on the exchange.
Deflation also occurs in the traditional banking system. For example, in countries such as Switzerland or Austria. On the contrary, prices are falling. Here the economic situation is such that even bank deposits with negative interest appear. That is: you invested money seemingly in growth, but on the contrary, it is declining! At the same time, people invest. And all because this percentage allows you to keep the amount in its neutral position, but at the same time the bank charges a service fee. In short, this method of saving money also works in these countries.
Unlimited release
There are altcoins with unlimited coin production. They, in their economic structure, are more similar to real money. The only limiting factor is the complexity of the network.
When a network becomes popular and contains many miners, competition for the mined block and possible reward increases. That's why top computers fight with each other for the right to catch him.
Network complexity is seen by many economists as a natural factor in the cryptocurrency microenvironment. It can be compared to the increasing complexity of gold mining. After all, there is less of it, and companies have to look for new deposits and spend capital on it.
So there is still internal regulation and serious inflation is not allowed. Many projects prescribe a schedule for issuing coins, even if their release is endless. They stick to about 2-5 percent inflation per year. This is considered a healthy indicator and good for the market as it encourages miners to spend coins rather than hoard them. That is, to push the economy towards progress.
Tokens and ICO
Tokens issued as part of the ICO of various startups stand out from the general concept. Therefore, they are unacceptable by the conservative cryptocurrency community. In one of the previous materials, we already wrote that if crypto is money and gold, then tokens are more like shares of a startup. The profit received by the investor depends on its prospects.
Developers themselves set the number of tokens that their system can issue. A significant percentage of them are sold at the start, during the ICO and token sale. This is analogous to an IPO organized on the stock market.
The quantity may be limited or unlimited. The volume depends on the purpose of the token. If this is a purely investment instrument, then there will be few of them, less than a billion. If the token is planned to be used as an internal means of payment, then the amount exceeds tens of billions or is completely infinite, so that more customers of the product can use it. Its position at the auction depends on the volume.
The more coins, the larger the composition of traders trading it. But in return, we get activity on exchanges, which helps to increase capitalization and keep coins afloat outside the main project.
Let's sum it up
To put the information together, here are the main points:
Real money is printed by the state, and cryptocurrencies are printed by miners. This is emission. The governments of the countries are dissatisfied with this situation, therefore they do not care about legalizing the blockchain industry
Anyone with a computer can get some crypto. This is the basic idea of Satoshi Nakamoto, the creator of Bitcoin.
In order to prevent inflation and loss of value, Bitcoin and major altcoins have limited their release, both in volume and time.
The fewer coins are planned, the greater the likelihood of a future good price on the market. Deflation will help with this
Network complexity and economic laws govern the position of unlimited altcoins
Tokens issued during an ICO can also increase in value, depending on the success of the underlying idea. Here, a lot is decided by work on the stock exchange and the volume of purchases/sales
