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In the research paper, the author(s) mention(s) the following:

Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.

What does this mean? I understand that once the 21M Bitcoins are minted, the incentive will only be to earn transaction fees. I do not understand the part of fees being inflation-free.

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Inflation is newly mined coins added to circulating supply. When block rewards become zero and transaction fees are the only incentives for miners, there won't be any new coins added to circulating supply.

According to https://www.viewbase.com/inflation (In last 24 hours):

1031 BTC mined

Circulating Supply of Bitcoin is 18,504,668 BTC

% of newly mined coins(24h) is 0.006%

Annualized inflation rate is 2.03%

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  • So, inflation means the addition of new coins and it has nothing to do with inflation of transaction fees? – Aviral Srivastava Apr 1 at 14:50
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    The "inflation free" means inflation of supply, not inflation of price – hedgedandlevered Apr 1 at 14:53
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    Transaction fees does not change supply. Alice has 0.25 BTC in wallet with some UTXOs and wants to send 0.1 BTC to Bob. Alice creates a transaction with 0.1 BTC as one output having address shared by Bob, another output with some change if required and a small fee(0.0001 BTC). This fee is not added by creating new coins. It's deducted from bitcoin Alice hold in wallet. Every block mined includes block reward (half in every 4 years) and fees for transactions added in block. – user119042 Apr 1 at 15:02
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    @AviralSrivastava There exist two somewhat related but very different concepts: monetary inflation and price inflation. Monetary inflation refers to the amount of currency in circulation increasing, while price inflation refers to the value of goods/services expressed in currency units increasing. The paper you are referring to is talking about monetary inflation; it's hard to predict what Bitcoin's price will be in the future. – Pieter Wuille Apr 2 at 0:47
  • Thanks @PieterWuille! – Aviral Srivastava Apr 3 at 0:18

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