Monetary policy of cryptocurrencies, explained
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Loading... - Angelina Hauser
- 07 Mar 2023
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1.What is monetary policy in crypto?
Monetary policy in crypto refers to the mechanisms used to manage the supply and circulation of cryptocurrencies. These mechanisms are intended to ensure the sustainability, stability and predictability of a coin’s value over time.
Cryptocurrencies rely on decentralized protocols to handle their monetary policy, as opposed to conventional fiat currencies, which are controlled by central banks and governments. These protocols may contain a number of tools for regulating the cryptocurrency’s supply, including block rewards, changes to the mining difficulty and issuance rates.
For instance, Bitcoin (BTC) has a fixed supply cap of 21 million coins. As time goes on, the pace at which new coins are introduced to the supply continuously declines, eventually causing a deflationary situation as the rate of new supply gets closer to zero.
On the contrary, certain cryptocurrencies may employ alternative mechanisms to govern their monetary policy, like proof-of-stake (PoS) consensus systems, which use staking to encourage network activity and control the cryptocurrency supply. Read More..
