One of the most important factors to consider when investing into cryptocurrencies and other digital assets is the economic properties of the coin itself. Let us take a look at some of the supply and demand characteristics of bitcoin.
From an economic perspective, Bitcoin differs drastically from fiat (government issued) currencies like the dollar. For starters, there are only 21,000,000 Bitcoin that could ever exist. This number is hardcoded into the software that runs the Bitcoin network and was arbitrarily decided on by Satoshi before the network officially came online. Conversely, governments have the ability to create currency at will.
The Bitcoin supply grows as miners add new blocks to the blockchain and the miners get rewarded for their work. Over time, the mining reward gets reduced by half about every 4 years. Currently the “block reward” is 6.25 bitcoin. Presently, about 90% of the 21,000,000 total coins have already been mined into existence. It is speculated that fees will be sufficient to reward miners to continue validating blocks once the final bitcoin is mined, but we have another 100 years before we get to that point.
In theory, the circulating supply of Bitcoin will continue to go down as coins are lost (forgotten passwords, user error when moving coins, increase in holder activity, etc.). On the other hand, dollars and other fiat currencies will continue to be printed, which aids in destroying the fiat currency’s purchasing power over time. Many speculate that this inverse correlation could lead to a single bitcoin being valued at over $1,000,000 someday. As digital assets continue being mass adopted, we could see further explosive growth in the price of bitcoin.
- Block Reward – reward miners receive for finding new blocks to add to the bitcoin blockchain
Block reward per block chart. Bitcoin Visuals. (n.d.). Retrieved March 22, 2022, from https://bitcoinvisuals.com/chain-block-reward
Redman, J. (2021, March 7). Satoshi’s 21 million mystery: One-millionth of the bitcoin supply cap is now worth $1 million – News Bitcoin News. Bitcoin.com. Retrieved March 22, 2022, from https://news.bitcoin.com/satoshis-21-million-mystery-one-millionth-of-the-bitcoin-supply-cap-is-now-worth-1-million/