Value-preserving coin inflation

The first protocol to propose funding public goods through coin inflation was Bitcoin, where miners are issued new BTC as compensation for their computational work β€” work that secures the network and thus benefits all users. In the case of Bitcoin, the coin inflation is for a specific public good and the issuance is preprogrammed by the Bitcoin protocol itself. We are proposing a generalized protocol for public goods where the issuance of new coins is variable (based on the economic value of public goods) and user-validated.

Now how can coin inflation be value-preserving? The proposition seems to be a contradiction in terms since inflation results in the devaluation of a currency. The answer is that, while coin inflation does indeed devalue the currency, the economic growth resulting from the production of the public good appreciates the value of the currency. Thus, the result is that the coin preserves its value, people are properly compensated for the public goods they create, while everyone in society benefits from real economic growth and from unrestricted access to public goods.

But why should people agree to the devaluation of their coins instead of benefitting from an increase in the value of the currency due to public goods-induced economic growth? The simple answer is that without properly compensating people for public goods, we’re unlikely to have as much economic growth. It is therefore much better to have a currency that maintains its value in an economy experiencing sustained growth over an appreciating currency in a stagnant economy.

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