Ergo, Inflation and the Importance of a Store of Value

We have been hearing the warnings for a while now and our economies have started to signal the inevitable: rising inflation is here. What does this mean for the value of your money and your financial future? 

Inflation occurs when the purchasing power of a currency is diminished against the rising costs of goods and services. In the United States, inflation spiked sharply in April and May of this year with rates of 4.2% and 5%, respectively. As of October, inflation now stands at a staggering 6.2%. In Canada, inflation has soared to a near 20-year high of 4.7% in October and it stands to reason it will go higher if the USA is already at 6.2%. These are concerning numbers as countries continue to struggle with strategies for reopening economies amidst the continuing COVID-19 pandemic. Ultimately, those who will feel the brunt of inflation will be the lower and middle class as the majority of this population have not earned wage increases to match rising inflation rates. 

Since the inception of Bitcoin, the argument has been made that cryptocurrency can be a solid hedge against rising inflation. Why is this? Cryptocurrencies with a fixed supply can not mint additional tokens and therefore provide scarcity and a store of value. Similar to Bitcoin, Ergo’s tokenomics guarantee that the supply is capped at approximately 97 million ERG (for comparison, Ethereum does NOT have a fixed supply of coins). Over time, inflation (whether gradual or extreme) will decrease fiat’s purchasing power of goods, services and other assets - including crypto. Compounding this issue is the willingness of governments and central banks to print an unlimited supply of money in tandem with what seems to be an infinite government debt ceiling. Think about that for a moment. Who will suffer when this house of cards falls? It is probably safe to assume it will not be the millionaire/billionaire class.

So what are the options? What can you do to diminish inflation's impact on your financial future? Most financial advisors encourage their clients to invest their savings into an asset class. Traditionally those include bonds, stocks, precious metals, etc. Most of these options are pillars of the traditional banking system and therefore continue to be controlled by centralized entities. If you are new to cryptocurrencies, you have no doubt come across discussions about centralized versus decentralized finance (DeFi). To explore that discussion more fully, here is some suggested reading covering some of the principles of decentralized finance.

With cryptocurrency, people have another option and a new way to invest their money. That being said, there seem to be thousands of options when it comes to cryptocurrencies. How do you decide where to invest? 

We recommend you ask some very important questions before you choose a blockchain to invest in:

• What are the tokenomics of the particular crypto?
• What is the circulating supply and is there a fixed cap for the emission schedule of the tokens?
• Was there an Initial Coin Offering? Was a portion of the supply reserved for founders and venture capitalists? If so, how much?
• What is the purpose of the particular blockchain?
• Does the blockchain have projects built on it? What kinds of products do they offer?
• Who are the founders and developers, and what are their goals?
• Is the blockchain decentralized or are there centralized features?
• Are the applications being built open-source and peer reviewed?

One of the proudest features of the Ergo blockchain is that there was no Initial Coin Offering (ICO) and no funds or assets were pre-allocated to any founders or developers (for a deeper dive into Ergo’s tokenomics, please see the following article). If you research the launch of other blockchains, you will find many that pre-allocated funds and held ICO’s to raise capital. Ergo had a truly fair launch and is developing a blockchain for the financial needs of the future. The Ergo Manifesto is the seminal document highlighting all of the inspirations and motivations for the creation of the blockchain. If one were to attempt to succinctly define the goal of Ergo, it would be to offer financial empowerment to the average citizen in a world where centralized entities have allowed the powerful to weaponize and control the flow of money for their benefit.

Ergo is an answer. Ergo is an opportunity for individuals to reclaim even a little bit of their financial freedom and power. Ergo is a possible solution to inflation and yet so much more than just a store of value.

The developers of Ergo are some of the leading technologists in the blockchain industry, having created smartcontract.com (now Chainlink). They are IOHK alumni (the company behind the creation of Cardano) and were instrumental in projects such as NXT and Scorex. The Ergo blockchain is designed with the UTXO model ledger that Bitcoin operates on but with the added advantage of smart contract functionality. This is called the extended UTXO model.

When you invest in Ergo, you are not just investing in a cryptocurrency, you are investing in a platform that is building decentralized applications (dApps) and financial products for you. You are investing in a platform that is committed to open source, peer-reviewed work and collaborations with other blockchains with like-minded goals (see UTXO Alliance  and BPSAA). The future of crypto adoption and a functional blockchain industry will require interoperability and the ability to host a wide array of services between different platforms. Therein lies the real potential of cryptocurrencies. In addition to a store of value, Ergo’s dApps offer competitive financial products and services without a centralized intermediary. Ergo is at the forefront of developing this future with features such as ErgoScript, Σ-protocols (see Whitepaper II and Whitepaper III) and NiPoPoW’s (Non-Interactive Proof’s of Proof of Work).

These powerful tools are the building blocks that support an already impressive ecosystem of decentralized applications:

ErgoDEX  - A flagship dApp on Ergo - it is the first decentralized exchange on the UTXO model with cross-chain capability with Cardano.

SigmaUSD  - A novel and innovative solution for a crypto-backed algorithmic stablecoin protocol.

ErgoRaffle - A decentralized pseudo-crowdfunding application.

Ergo Auction House - Ergo’s NFT hub.

ErgoUtils - The dApp for the creation of Ergo NFT’s and new tokens.

Oracle Pools - Messengers between Ergo blockchain and the outside world.

These are just a few of the dApps currently deployed on Ergo. For a comprehensive overview of the ecosystem please visit Sigmaverse and explore the dApps that are in development from the most recent ErgoHack.

As this article attempts to convey, Ergo is designed to be a solution for financial empowerment. With rising inflation and the uncertainty that accompanies that reality, we believe that Ergo and the tools it is building will become increasingly more important in times of financial uncertainty. If you have more questions about the possibilities of Ergo, we encourage you to explore our website and ErgoWiki and get to know the community on Telegram, Twitter and Discord. The Ergonaut community is one of the best aspects of Ergo and they are the reason we are building this blockchain. Ultimately, we are stronger as a community and the feedback we receive informs us about the tools and dApps we need to focus on to meet the financial needs of society.