Among Bitcoin’s principal tenets is the idea that its baked-in scarcity makes it valuable. Bitcoin’s algorithmically determined rate of increase certainly makes it scarce when demand for the bitcoin cryptocurrency is rising, though not so much when it is falling. Furthermore, the fact that the algorithm provides for bitcoin’s supply to stop increasing about 120 years from now means that its supply is finite. Unless the code is changed (and that raises questions about what “Bitcoin” even means), there can never be more than 21 million bitcoins.
As I will show, however, bitcoin’s scarcity doesn’t stem from its finite nature, but from potentially infinite – though fickle – demand. And its legendary volatility is linked less to its scarcity or its finite nature and more to its inherent inflexibility. These distinctions may sound slight, but I argue they amount to important revisions of our understanding of this technology.
Frances Coppola, a CoinDesk columnist, is a freelance writer and speaker on banking, finance and economics. Her book, “The Case for People’s Quantitative Easing,” explains how modern money creation and quantitative easing work, and advocates “helicopter money” to help economies out of recession.
Scarcity is hardly unique to bitcoin. All assets are scarce. Indeed anything that has a price is scarce, by definition. If there is no scarcity, there is no price. Things that are so abundant that everyone can have