Mining Speed Defines Growth Requirements

The inflation through mining must be balanced by people buying more coins to keep the price stable. Governments can control the inflation of their currencies to some extend. The developers of crypto currencies have less control. Effectively, the inflation is fixed and define the mining speed. What does it tell you about a new coin?

At first, I found this article from CryptoSource “Good buys and coins to avoid. How daily coin maintenance costs should factor into your investment decisions” very insightful. It basically declares the inflation as “daily maintenance cost”. Economists would just call it “inflation”. Most economists consider inflation a good thing. They say it motivates people to spend the money instead of hoarding it. Of course, the inflation should be within reason. Too fast and it destroys the economy. If you want to make money with the increasing value of crypto currencies, then inflation is a bad thing, though.

We know the inflation of an altcoin from the beginning. The unknown part is how fast people are buying a coin. When the market cap of a coin stays stable, we know pretty exactly how much money people are putting into it. Isn’t it amazing that over $1M is invested daily into Dogecoin?

How does this help us rate new altcoins? The mining speed tells you how aggressive a coin must grow.

Bitcoin is probably the slowest speed. Altcoins can grow faster because Bitcoin already layed the groundwork and infrastructure. Dogecoin is the fastest growing, successful coin. Bitcoin is now mined at 3600 BTC/day with over 12M BTC in circulation, so 0.03%  inflation per day. Dogecoin is mined at 720M DOGE/day  with over 46 billion DOGE in circulation, so 1.57% inflation per day. Since the slow speed of Bitcoin is not advisable today and Dogecoin is crazy (in a charming way), I would consider an inflation between 0.1% and 1.0% realistic for new altcoins. Ignore the first days, though. Every coin has a 100% inflation on its second day.

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