Bitcoin users are divided over whether the capped supply (21M) is a blessing or a curse. As the mining continues, the residual reserve is getting depleted, and at one point, possibly in the 2040’s, bitcoins will run out of production.
What is bitcoin mining?
When the Bitcoin network yields a cluster of transactions, a new block is produced, and subsequently added into the blockchain, and so, the peers who cater to the computational needs of completing transactions are known as the miners and depending on the intensity of their work, they earn bitcoins.
It’s important to know that bitcoin-mining is impractical for an individual, though. The reason is simple; operational costs like water and electricity dwarf the profits. Bitcoin mining is nowadays in the domain of mining pools, and most of these pools are based in China. But if you still feel that you were born to mine, then cloud mining is your only viable option.
Why are bitcoins limited?
The original protocol of the blockchain had been setup to a limit. In that sense, it’s like a car that’s cruising across a desert, with its fuel lessening by the day, so that at a point in the coming days the car will run aground. When 21 million bitcoins have been supplied into the economy, the Bitcoin system will cease producing more bitcoins.
Satoshi understood that putting a ceiling on bitcoin-production may cause a strain in the future, and as a clever solution, he made bitcoins divisible into hundred million units. The smallest unit is named after him (SATOSHI). Think about conventional money; is it divisible beyond a cent?
The quality of being scarce is the hallmark of a value system. Think about gold, silver, money even; all of them are scarce resources. Technically, money isn’t scarce, but since it is centralized, the men controlling it make it scarce on purpose. In that sense, money is a scarce resource.
What are the implications of restricted bitcoin production?
It depends on how the global economy will respond to it. Gold may be a limited resource, and yet it is still valuable, because gold it is not a mass product. If bitcoins take that road, which is unlikely, the unit price of a single bitcoin will shoot up, and in consequence, bitcoins will become high-value assets, just like gold.
However, if the bitcoin craze takes over the world, and we have many more people wanting to become “bitcoiners“, on the one hand, it will be a face-lift for the currency, and on the other hand, its scarcity against the global demand may lead to a market crash and eventual deflation.
Economists talk of deflation as if it were alien-arrival or simply a disaster. It’s true that deflation is characterized by low-profit margins and unemployment. But also deflation lowers down costs of goods and services. This means that the entry barrier into the economy has been lowered. Therefore, most everyone can afford to enter the market.
How can bitcoin stabilize with its limited supply?
Bitcoin’s ability to scale down into many decimals is a plus. In fact when you multiply a satoshi by the total bitcoin unit you get a large enough figure (in the trillions). Also, bitcoin may not become a dominant currency, considering that other digital currencies are coming up. But when all is said and done, bitcoin has given us a glimpse into the future of the finance world.