A cryptocurrency can fall into a number of categories. It can be a coin, a token, a stablecoin, a wrapped token, and much more. Cryptocurrencies can also be inflationary or deflationary. But what is the difference between these two categorizations? What makes a crypto inflationary or deflationary?

The Importance of Supply limits

Supply limits play a key role in whether a crypto is inflationary or deflationary. A supply limit refers to the maximum amount of any given coin or token that can ever be put into circulation. Naturally, this differs depending on the crypto at hand. Bitcoin, for example, has a relatively low supply limit of 21 million BTC, whereas Ethereum has no limit at all.

It is rare for a supply limit to change, and this limit can affect how a cryptocurrency performs in the market.

Inflation and Deflation

It’s also key to fully understand inflation and deflation before getting into inflationary and deflationary cryptocurrencies.

In short, inflation involves a decrease in the buying power of a currency or asset. In the real world, this usually happens as a result of an ever-increasing cost of living (think, fuel, food, products, luxury goods, etc.). Deflation, on the other hand, involves the increase in a currency’s buying power due to a decrease in a country’s cost of living. It may sound like a good thing but can indicate a flawed economy.

In the crypto world, inflation and deflation relate to the supply of a given coin or token rather than its buying power (though they are related). This is where inflationary and deflationary cryptos come into play.

What Is an Inflationary Cryptocurrency?

Inflationary cryptocurrencies are those with an ever-increasing circulation number. Dogecoin is…