Web3 tools to beat inflation
- November 6, 2022
- Crypto Featured Guides & Reviews Kuro Writes Web 3
- Kuro Satoshi
Before we understand how to beat inflation, we need to understand inflation first. Understanding inflation will make you understand the potential of web3 in this economic crisis.
Are you ready? Starting from Web3, lets goooooooo
What is Web3?
Web3 is an umbrella term that refers to the next iteration of the internet. The first iteration of the internet (Web1) consisted largely of static images and text. Web1 offered little opportunity for interactivity. Plus, only a handful of programmers were able to create content. However, Web2 changed this by introducing interactive social media platforms and marketplaces. Web2 is the version of the internet with which most of us are familiar. It features interactive websites that enable anyone to create and share content. Unfortunately, a small group of powerful companies and individuals who profit from and have ultimate authority over our online experiences controls Web2.
Furthermore, the Web2 landscape serves as a data mining machine that prioritizes shareholder profits over data security and the well-being of users. This is where Web3 comes into play. Web3 aims to take power out of the hands of big tech and place it back into the hands of users. The use of permissionless protocols that exist on the blockchain allows users to interact with an array of decentralized applications (dapps) powered by smart contracts without intermediaries. Also, the Web3 industry lowers the barrier to entry for financial instruments by developing open financial protocols that anyone can use, regardless of wealth, status, or geography.
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Cryptocurrencies play a crucial role in Web3, as they facilitate decentralized token economies. These token economies can be created to give artists and content creators the freedom to express themselves outside of the constraints of Web2. Not only does this help to protect against censorship, but it also allows creators to receive royalty payments on time and in full. Additionally, Web3 places the utmost importance on user privacy. Accordingly, many decentralized social media platforms allow users to select what types of adverts they see and monetize their data.
Interesting , right?
What Is Inflation?
Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.
Generally speaking, a rise in inflation tends to coincide with an increase in asset prices. So, if you have cash under the mattress, you may find that it buys you less when fiat currencies are inflated. On the other hand, if you hold assets such as gold or stocks, their value could increase during periods of inflation.
Types of inflation
Demand-pull inflation refers to an increase in money supply and credit that causes the demand for goods and services to increase faster than production capacity can cater to. When this happens, prices tend to increase as goods and services become scarce. Also, when consumers feel they have more money (or purchasing power), they are likely to spend more, which exacerbates the price hikes. In turn, demand-pull inflation causes a snowball effect where an increase in consumer demand leads to higher prices, which causes supply chain shocks and further price increases.
Cost-push inflation occurs when price increases are felt throughout the supply chain. For example, when new money enters circulation via asset or commodities markets, it can cause the price of related goods and services to increase. In particular, cost-push inflation is felt when the supply of essential commodities is disrupted. When this occurs, the increasing cost of components, manufacturing, and distribution coincide with overall price increases.
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Lastly, built-in inflation relates to the shifting expectations toward inflation. When prices increase, some consumers forecast a continuation of price rises. As a result, employees often demand wage increases to account for a rise in the cost of living. When employers need to pay staff more, the prices of goods and services tend to increase.
How to Beat Inflation Using Web3 Tools
Now that we understand inflation and Web3 a little better, let’s take a look at how to beat inflation using Web3 . Below, we discuss the best web3 tools to help you protect your purchasing power during periods of inflation and economic uncertainty.
Bitcoin is arguably one of the best ways to hedge against inflation. Investors often compare Bitcoin to gold, as it is a scarce, fungible asset with a limited supply, and it requires work to produce. However, the actual scarcity of gold is unknown. The discovery of new pockets of gold happens regularly. Also, gold enters circulation in an unpredictable way. Furthermore, gold can be forged. Most holders of gold don’t know if they hold real gold or what the percentage is of gold in the bars they own. Holding BTC carry some level of risk which I wish to discuss later.
Decentralized finance (DeFi) is an umbrella term that relates to a new paradigm in finance and technology. The DeFi ecosystem consists of open financial protocols that operate using smart contracts on public blockchains. Also, these protocols operate without the use of intermediaries. Furthermore, rather than being controlled by one single entity or central authority, DeFi protocols use token economies to incentivize community governance.
DeFi provides a suite of financial tools and services that emulate services in the traditional finance sector, such as borrowing, lending, bonds, yields, derivatives, and insurance. However, unlike traditional finance, DeFi protocols don’t require users to provide personal information. In fact, anyone with an internet connection can use DeFi to put their idle assets to work.
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DeFi is one of the best tools for learning how to beat inflation. With DeFi, users can earn yields and interest on a range of tokens. From yield farming and liquidity mining to staking, DeFi presents an abundance of opportunities.(Refer to the previous blog to learn more about Staking and yield farming) As such, you can preserve wealth and generate a passive income. Furthermore, because DeFi protocols don’t use middlemen, most earnings are passed on to users.
Non-fungible tokens (NFTs) are one of the biggest drivers of Web3 adoption in recent years. NFTs allow anyone to tokenize assets on the blockchain. One of the most popular use cases for NFTs is in collectible art. NFTs create an immutable history of ownership and enable holders to prove the scarcity of their works. Accordingly, NFTs are becoming the go-to medium for contemporary artists. People will prefer to hold their wealth in NFT than traditional assets.
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Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins are more useful than more-volatile cryptocurrencies as a medium of exchange. Stablecoins may be pegged to a currency like the U.S. dollar or to the price of a commodity such as gold
Holding stablecoins will not beat inflation – they are pegged to fiat currency, which is inflating. To beat inflation, you need to stake your tokens, in turn earning yield. Many variables come with staking crypto, including APY, risk, size of pool, asset being staked and staking platform.
In most Africa countries like Ghana and Nigria, you don’t need to stake your stable coin to realize return. The currencies are deflating in nature. Typical example is the Ghana cedis which deflated against the dollar more than 50% in 2022 which mean if you hold stable coin, you have more than 50% purchasing power than others who hold cedis
The number of variables can be confusing, but stablecoins help simplify the process. By keeping their peg to a dollar, you will not have to worry about volatile price movements.
Earning in foreign currency or crypto
As I said previous , web3 is not only about investing in cryp15to or NFT. You do remote work and get paid in cryptos. There are a lot of job opportunity in web3 ranging from tech-jobs to non-tech jobs. There jobs such as content creation, social media managing, community manager ,…… this will be most beneficial to people from countries where cost of leaving is lower than that of UK and US.
The information provided in this post is for educational purpose only. It should not be considered as financial advice. Do your own research before taking any investment action.
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