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Litecoin's Future Role In The Economy As Inflation Rages On

As inflation continues to rage around the country, and around the globe people are beginning to understand that fiat money has its limitations. When inflation was hitting the FED's 2% target, life was... manageable. Now that the year over year inflation rate is somewhere in the ballpark of 9%, everyday goods are getting harder to purchase. People are having to forgo luxuries because their dollar has to be stretched. Life is becoming unmanageable. With real wages falling, people aren't going to be able to stomach 9% inflation indefinitely. They will break.

It doesn't take a math wizard to figure out that if the 9% inflation rate doesn't slow down, tough times are ahead. Austerity is in order. Austerity isn't exactly celebrated by the general public. Do you celebrate eating 1 slice of pizza when you want 4? Do you celebrate eating 5oz or steak when you really want 22 oz? Of course you don't. Do you celebrate a 2 day vacation when you want a full week? People want to be able to experience an enriching life, and at 9% inflation, that isn't happening.

While many pundits in the media will put all of the inflation blame on greedy businesses, wars, and supply lines, people in the crypto-sphere understand that monetary policy is at least part of problem. Perhaps most of the problem. A lot of crypto lovers and gold bugs have simply cracked the code. The money is broken. And it's even noticeable in the United States.

Monetary policy has changed drastically ever since Covid came onto the scene. The U.S Government created 1/5 of ALL U.S. Dollars in the year 2020. This is an astonishing fact, and something scary if you understand the ramifications. This monetary policy certainly has an enormous role to play in not only U.S. inflation, but global inflation as well. Central bank monetary policy has created inflation around the globe and while this article is not going to be doing a deep dive into central bank policy, you may want to immerse yourself in the idea of "race to the bottom." This is the tendency for central banks to print money as fast as they can so that their respective countries are able to purchase assets BEFORE their currency loses all value. If they want to remain solvent, they are basically FORCED to create new fiat. Forced again to inflate and this is not good.

Austrian economics aside, where does Litecoin fit into this story? Beyond the amazing technology that Litecoin is, it also has a monetary policy. And that policy has been set by the protocol, can not be changed by any central bank, and no politician can vote to change it. Litecoin is known, established, has rules, has security, and it can not be hacked. Powerful truths. Litecoin has a limit of 84 million coins. There were 70.52 million on June 18, 2022, so as of that date, there were roughly 13.48 million left. Here is a chart of the inflation rate, and projected inflation rate. Unlike fiat, we know the inflation rate. The inflation rate is programmed into Litecoin. Astonishing.

Chart 1 - Realized and expected annual inflation rates (%) on Litecoin

When people experience pain in the marketplace (due to inflation) they will naturally explore ways to relieve themselves. They will seek an inflation hedge. If they don't want to suffer, their money will flow into something that can hold its value, something that doesn't even want to pick an arbitrary inflation rate. They will want a money/currency that works for them. Not a currency that only works for the cantillonaires. They will want to be able to spend that money on goods and services. This is where Litecoin shines, not only does Litecoin aim at being a good store of value, but Litecoin also doesn't shy away from a use-case that some BTC maxi's shy away from, spending.

Litecoin has always embraced the spending side of crypto. In order to build an economy it's pretty evident that people, businesses, market makers, are going to need to spend money. And Litecoin is being designed to actually be used. Some crypto advocates are holding onto an extreme position that crypto should only be hoarded. Like a dragon lying on top of its gold in middle earth or something. That isn't normal (or healthy) behavior. It's actually outrageous. Money exists to be earned, saved, and spent to enrich one's life. Litecoin has a monetary policy to maintain its purchasing power. In addition, the Litecoin community has a healthy psychology that people shouldn't be scoffed at for actually wanting to spend the coin. There is a vibrant ecosystem that needs to be built and Litecoin is ready to build that ecosystem.

So why would a currency like Litecoin, take off (to the upside) in the first place? Why wouldn't people just bear the cost of inflation? Let's look at a couple of realistic hypothetical situations. If a person is losing their purchasing power to inflation, they might want to park their dollars (or whatever fiat money) in something that holds its value. There are a number of different places people can try and achieve that today. There are things like stocks, bonds, gold, used cars, silver, cash. Each one of these has drawbacks. I'll focus on the most popular one today, stocks. Stocks have beat inflation for a long time and have been a wonderful place to park your money. No doubt. The main problem with stocks is that while stocks may be a good long term store of value and investment, they aren't designed to be spent. Stocks aren't money. Plus there are other reasons like laws (KYC/AML), volatility ( I know what you're thinking), technical reasons (fractionalized stocks), and the time it takes to research various stocks. Simply put, stocks aren't designed to be money. So a natural place for people to retain their purchasing power would not be in a stock but to be in something trying to be money, Litecoin.

There are other cryptos but many of those are technology platforms and have outrageous monetary policies. Litecoin is trying to be money, other cryptos aren't even pretending to be money. This is important. Things like ETH have burned coins before and are changing consensus algorithms, that doesn't exactly sound like the most stable policy does it? If Person A is losing their purchasing power due to inflation, and Person B is gaining purchasing power due to choosing a currency with strong fundamentals (Litecoin), it won't take forever for Person A to get Jealous of person B and do exactly what they are doing. Buying Litecoin. Keeping up with the Jones' has a lot of game theory behind it.

And on a bigger scale, if Company A is losing money due to inflation, and Company B is gaining money due to their currencies established monetary policy, Company A is clearly going to mimic what company B is doing and embrace the currency that is holding its value. Litecoin is trying to be that currency that companies can both

A. Store Value

B. Spend

A wonderful initiative.


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