Deflation

Deflation, in economic terms, refers to a general decrease in the price level of goods and services over time. In the context of cryptocurrencies, deflation occurs when the supply of a cryptocurrency decreases or demand increases, leading to a rise in its value. This deflationary mechanism can happen through various means, such as coin burns, where tokens are permanently removed from circulation, or a capped total supply like Bitcoin, which becomes scarcer as it approaches its maximum supply.

In a deflationary environment, the purchasing power of a cryptocurrency increases over time as fewer tokens are available in circulation. While this can benefit long-term holders, it may discourage spending as users expect the value of their holdings to appreciate further. Many cryptocurrencies, like Bitcoin and Binance Coin (BNB), incorporate deflationary mechanisms to drive long-term value growth.