What Is Coin Inflation Rate?

The rate is roughly calculated by dividing the amount of newly minted coins in a year by the existing supply. New supply mostly comes from block rewards given to miners or staking rewards distributed to validators. In Bitcoin, because the block reward is halved roughly every four years, the inflation rate falls over time and approaches zero as the supply nears the 21 million cap. In Dogecoin, since a fixed amount of coins is produced in every block, the annual new supply stays constant in amount but gradually decreases as a percentage.

In some networks, net inflation is found by subtracting the amount burned from new issuance. In Ethereum, because part of the transaction fees is burned with EIP-1559, the net supply may decrease during periods of heavy network usage and may increase during quiet periods.

The inflation rate matters because it shows the extent to which existing holders' share is diluted. For example, in a network offering a 5 percent annual staking reward, if the supply also grows 5 percent, the staker's share in the network does not really change. Even so, inflation alone is not enough to draw conclusions about price; demand, unlocks and usage are also decisive.