The silent leak in your money

What is that?

By now we understand that money is a technology to move value across space and time.
This immediately raises an important question:

What happens when money fails at that job over time?

The answer is inflation.

Most people think inflation simply means prices going up.
That is what we notice at the grocery store, at the gas pump, or when paying rent. But rising prices are only the symptom, not the cause.

A more accurate way to think about inflation is this:

Inflation is the loss of purchasing power of money over time

In other words, the money itself is changing. It is becoming worse at preserving the value you stored in it.

Why inflation happens

Inflation is not a natural law like gravity, it does not just happen on its own. It is always the result of decisions, incentives, and system design.

At its core, inflation happens when the supply of money grows faster than the supply of goods and services.

Imagine a simple world:

There are ten people.
There are one hundred apples.
There are one hundred units of money.
Each apple costs one unit of money.

Now imagine that nothing changes except one thing: someone creates another one hundred units of money.

There are still ten people.
There are still one hundred apples.
But now there are two hundred units of money.

What happens?
Each unit of money now represents a smaller share of the same real world goods.
Prices rise, not because apples became more valuable, but because money became less scarce.
This is inflation.

Who benefits and who pays

Inflation does not affect everyone equally, those closest to the creation of new money benefit the most:

Governments can spend before prices rise.
Banks and financial institutions receive new money early.
Large asset holders see prices of stocks and real estate rise first.

Everyone else pays the cost later:

Workers see their wages lag behind prices.
Savers discover their money buys less each year.
People on fixed incomes are hit the hardest.

Inflation quietly transfers value from the many to the few, without an explicit tax bill. This is why inflation is often called a hidden tax.

Why inflation feels confusing

Inflation is hard to understand because it is gradual and normalized.

If someone took ten percent of your savings overnight, you would notice immediately but the same loss happens slowly over five years, it feels (almost) invisible.

Money illusion also plays a role:

Your bank balance goes up.
Your salary number increases.
Prices rise at the same time.

Everything looks larger, yet nothing feels better, you are running faster just to stay in the same place.

Inflation and trust

For money to work well, people must trust that it will hold value over time and when inflation becomes severe, that trust breaks.

History is full of examples:

People rush to spend money as fast as possible.
Savings are converted into goods or foreign currencies.
Long term planning becomes impossible.

In extreme cases, money stops functioning altogether and society falls back on barter or alternative forms of exchange.

Inflation is not only an economic problem but also a social and moral one.

If your time and effort are stored in money, and that money is constantly losing value, then part of your life is being quietly erased.

At this point, one question should be forming naturally.

If inflation is caused by expanding the money supply, and inflation destroys purchasing power over time, then what would a form of money look like that cannot be inflated?

That question leads directly to Bitcoin.

Keep reading, this is were things get interesting!