Roughly speaking, inflation and deflation happen when the amount of a currency increases and decreases. So, for example, if the United States Federal Reserve prints a billion dollars, then the US Dollar is inflated by that amount. If a billion dollars are destroyed, then the US Dollar is deflated by that amount. Inflation and Deflation are concepts which are not limited to real currencies, however. Virtual currencies such as FP$ are also subject to inflation and deflation. This article discusses how the FP economy changes over time. You can also use the concepts in this article to evaluate another virtual currency, such as the point system used by your own forum.
Inflation – How is FP$ Created?
At the beginning of the day, there was no FP$ in the economy. When the points system was originally installed, the total quantity of FP$ was 0. However, the supply of FP$ began to quickly inflate, as people earned points by posting around the forum.
There are several ways to earn FP$. Below is a rough list.
- Posting a Reply: 2 FP$
- Posting a Topic: 4 FP$
- Posting a Reply in Community Reviews: 15 FP$
- Submitting a Blog Article [Rejected]: 50 FP$
- Submitting a Blog Article [Good Rating]: 300 FP$
- Submitting a Blog Article [Excellent Rating]: 400 FP$
These are all ways in which the FP economy is inflated. Whenever a member does one of these things, FP$ appears out of thin air and lands in that user’s FP$ bank. It is equivalent to the Federal Reserve printing dollar bills. What does NOT inflate the FP economy are exchanges between members. When a member donates 100 FP$ to you for completing a service in the marketplace, 100 FP$ is being removed from their account, and then added to your account. No inflation or deflation is taking place.
There are also several ways in which staff members earn FP$. Whenever a user requests a review, they are deducted either 100 FP$ or 300 FP$. The reviewer is paid exactly that amount, which means that there is no inflation or deflation to the FP economy. However, the package team has many different packages which they offer with vastly varying prices. Depending on what package is being requested, the amount which package team members are paid results in either inflation or deflation. Perhaps the one greatest source of inflation for staff members are submitted blog articles. Every time an editorial team member submits a blog article, he or she is paid the same rate as a regular user, which means that 400 FP$ is added to the economy.
Deflation – How is FP$ Destroyed?
Every dollar bill which is printed by the United States Federal Reserve has a certain lifespan. Eventually, after that dollar bill has been passed from hand to hand enough times, it will deteriorate and become useless. Also, dollar bills are regularly lost, thrown away, destroyed in fires, and so on. Every year, a consistently predictable number of US dollars leaves the economy, and US dollars are printed by the Federal Reserve to compensate.
FP$ is no different. There are several ways in which FP$ can leave the economy. From a technical standpoint, this happens when users request services which are deflationary. These services include a few services offered by the Editorial Team, such as a stickied topic or Featured tag, and also all services which are offered by the Administrative Team. In a way, the primary purpose of the admin services are to control the quantity of FP$ which is in the economy.
The ways in which FP$ can exit the economy are as follows.
- Text Advertisements: 80 FP$
- Signature Advertisements: 50-100 FP$
- Featured Site: 400 FP$
- Social Advertising: 200 FP$
- Auctions: All auction proceeds are deflated from the FP economy
There is another way, also, in which FP$ is removed from the economy. Whenever a user goes inactive, that user’s FP$ supply has effectively left the economy. It’s as if someone locked away a fortune in a bank vault, and never bothered to re-visit it. If that user returns, their FP$ can be re-entered into the economy if they begin to spend it in the marketplace. But otherwise, it will not have much of an effect on the value of FP$.
How Do Inflation and Deflation Effect the Value of FP$?
In the previous article in this series, we defined the value of FP$ as 1 FP = $0.01 USD. That value, though, is one that is subject to fluctuation.
If people began requesting a different rate for posts in the marketplace, in either FP$ or USD, the value of FP$ would either decrease or increase. Whether people change the rates they request depends on how much FP$ they need, and how much FP$ people have, and are willing to pay. If the supply of FP$ increases, then buyers will be willing to pay more for posts made on their forum, or similar services. Sellers will recognize this fact, and begin to charge more. If the amount of FP$ which buyers have decreases, then sellers will be forced to charge less, and therefore the value of FP$ will increase, because you will be able to buy more with it.
This article discussed how Inflation and Deflation effect a forum’s economy. A future article in this series will discuss the different ways in which a forum administrator can control inflation and deflation to set the value of their currency. In addition, a future article will discuss how a forum currency can have an official value, by allowed people to exchange the currency for a real product.