Bitcoin Supply Limit: Advantage or Disadvantage?

The total supply of Bitcoin is set at 21 million coins, a feature that has sparked much discussion. Some believe this is an advantage of Bitcoin that can prevent inflation; others think it is a fatal weakness that could lead to deflation. So, is this supply cap a flaw or an advantage of Bitcoin?

First, it is necessary to clarify a common misconception: the actual supply limit of Bitcoin is 21 million, not 21 million trillion. The creator of Bitcoin limited the total supply to 21 million coins from the beginning and set a mechanism for increasing mining difficulty over time. It is expected that the last Bitcoin will be mined around the year 2140. This design can be said to be very foresighted.

However, some people still criticize this quantity limit. They point out that in 2017, the global GDP reached 74 trillion USD, and the M2 supply of USD was nearly 14 trillion. If only 21 million Bitcoins are used as the main currency, wouldn’t that lead to severe deflation?

In fact, this criticism overlooks a key point: Bitcoin can be infinitely subdivided. The smallest unit of Bitcoin, “Satoshi”, is one hundred millionth of a Bitcoin. This means the actual maximum quantity of Bitcoin is 21 million trillion. Assuming 1 Satoshi is equivalent to 1 dollar, then the total issuance of Bitcoin could reach 21 trillion dollars, which is enough to meet the trading needs of humanity.

Even if human society is highly developed in the future, a circulating currency of 21 trillion will still be insufficient to meet transaction demands, and humanity will not fall into difficulties as a result. Just as we created Bitcoin, it is possible that other forms of currency may be created in the future. In fact, there are already thousands of cryptocurrencies on the current market, such as Litecoin, Ethereum, and EOS. This reminds us of ancient China, where gold was used as currency, but when gold was insufficient, people turned to alternatives such as silver, copper, and even shells.

Some may question, since we criticize the unlimited issuance of fiat currency, why do we support such a large quantity of Bitcoin? Here are two points that need to be clarified:

1. The issuance of digital currencies is an endogenous result of the market, while the issuance of fiat currency is not. Mining requires costs, and miners increase liquidity and create value by providing services, which is essentially no different from producing bread or offering haircuts.

2. Bitcoin has a capped supply, while fiat currency can be issued infinitely. The purpose of setting a cap is to create an expectation of scarcity. Just as gold and artworks appreciate due to their limited nature, the finite supply of Bitcoin also endows it with value. In contrast, fiat currency continuously depreciates due to its unlimited nature.

The limited quantity of Bitcoin combined with its ability to be infinitely subdivided gives it unique flexibility. When Bitcoin appreciates, it can adapt through more detailed segmentation. This monetary mechanism can be considered quite perfect.

Humanity has been exploring the ideal monetary system. In answering questions such as how much currency society needs, who should receive the new currency first, and who has the right to produce currency, Bitcoin seems to provide a rather inspiring solution.