Bitcoin Supply Inflation Over Time

Just to clear things up: these charts are all about Bitcoin's monetary inflation, not to be confused with price inflation, which is a whole different topic. When Austrian economists talk about "inflation," they're usually talking about the money supply, while Keynesians are more focused on price changes. Also, keep in mind that the top axis labeled "Year" is just an estimate, based on the plan to generate one block every 10 minutes. In reality, blocks have been coming in a bit quicker because the hash rate keeps going up, so we've actually moved along a bit more than what those year labels show. This doesn't mean we're gonna have more than 21 million bitcoins; it just indicates we'll finish generating coins a bit sooner than if the hash rate had stayed the same. Bitcoin Inflation 4x3.pdf (8"×6") | Bitcoin Inflation.pdf (8½"×11") Bitcoin Inflation logarithmic.pdf (8"×6") Feel free to use and share!

Very nice

Pictures not working...

Maybe because they were on Facebook's CDN. I've moved them over to my own web space now.

The first curve should have met at 25%, but it looks more like 29%.

How do you figure? Before block 209,999, there were 10,499,950 BTC in existence. Then block 209,999 added 50 more, bringing the total up to 10,500,000 BTC. That was an increase of 0.000476193%. To calculate the annualized inflation rate, you take the natural log of 1.00000476193, multiply by the number of blocks in a year (52,595.9856), and exponentiate the product, base e, which yields 1.28461321188. So the annualized inflation rate at block 209,999 was 28.46%.

I know where you got 25% from. That's the inflation that occurred in the last year prior to the reward halving. That's not the same as the annualized instantaneous inflation rate.

We are looking forward to 2030+ for "no inflation"...

Can you make a version with logarithmic scales?  Given the exponential decay it would provide more detail for later years.

Forgive my ignorance here, but I'm not sure I understand this graph. I'm not a math genius or economics genius, but I thought inflation was a rise in prices due to an increase in the money supply, which is obviously not what we see graphed here. How is inflation defined in this graph?

Inflation in this case is the increase in the supply of money (sometimes called money supply inflation). At the point where the graph indicates 10% it means the money supply is growing at 10% annualized rate at that point in time. It is sometimes useful for people to be specific (price inflation vs money supply inflation).  Obviously both "sides" believe their definition of inflation is the right one but it always leads to confusion and/or fights.  If everyone simply used the terms price inflation or money supply inflation it would always be clear.

Well that was my first guess, but then I thought the blue line was plotting the increase in the money supply or "monetary base" (same thing right?) and so then I figured they should just be the inverse of each other?

Done.

If the inflation rate were the inverse of the monetary base, then it would have units of BTC-1. But inflation rate is actually a unitless quantity. It expresses the fraction by which the monetary base grows in one year. This chart shows the instantaneous rate of inflation, annualized. "Money supply" and "monetary base" are the same thing in the absence of fractional reserve banking.

Ok so if I'm understanding this correctly, it is essentially the inverse or what ever you want to call it, I'm not a math genius as I said... except that it is plotted as a percentage of change in discrete yearly steps?

It's a percentage. It could be calculated and plotted in discrete yearly steps, but this chart shows the instantaneous (i.e., continuous) rate of inflation. "Annualized" just means that the rates are expressed at each point on the curve as though that rate of inflation were constant for a whole year and the money supply at the end of that year were compared to that at the beginning of the year. Inflation is usually expressed as an annualized rate. When you hear that the Federal Reserve is targeting an inflation rate of 2%, that's an annualized rate.

The money supply increases linearly (roughly) at 50 BTC every 10 minutes for the first 210000 blocks, then 25 BTC every 10 minutes for the next 210000 blocks, then 12.5 BTC every 10 minutes, and so on.  That is why the blue line is made up of straight lines with decreasing slope every 4 years or so. The instantaneous inflation rate decreases over time.  If I have 50 BTC in the total economy (block 1), and then I suddenly have an additional 50 BTC 10 minutes later, the total supply has inflated 100% from what it was a moment ago.  Annualized that works out to well over 1000% inflation rate.  As the total supply increases after each block, the next 50 BTC are smaller percentage of the total then the previous 50 BTC were (because the total is larger). Now that I have 100 BTC in the supply, the third block of 50 BTC increases the total supply only 50% instead of 100%.  This is why the red line is made up of curved sections (although given the scale of this graph after 2017 it becomes difficult to see the curve). Then once every 210000 blocks the amount of newly minted currency is cut in half.  This creates a 1 time sudden drop in the amount of currency being created every ten minutes.  This would be why you see the straight dropping verticle portion of the red line every 4 years or so.

Nice. I think it would be useful a more detailed chart, from the beginning until 2014

Very cool, thanks.

Useful graphs, props.