Bitcoin (BTC) was launched using blockchain technology (a blockchain is simply a chronological digital ledger of transactions) by an anonymous individual or group of individuals under the alias Satoshi Nakamoto in 2008. Since its inception, Bitcoin has been programmed to grow in scarcity over time unlike any asset or commodity in history. There are two components to Bitcoin’s blockchain programming that essentially hack the laws of supply and demand in order to continually appreciate in price as scarcity grows.
The first component of Bitcoin’s value coding is that it has an absolute supply cap of 21 million BTC. There can never be more than 21 million BTC in existence. The technological revolution of cryptocurrency is the ability to create products that are digitally unique. Bitcoin is a digitally unique asset that has a finite supply. This technological revolution should not be overlooked because nothing else in the world has a finite supply like Bitcoin does. Gold, while the supply is limited, is continuously produced by natural processes over time. Company stock can be issued at any time. Central banks print trillions of fiat currency dollars into supply each year, gradually destroying the purchasing power.
Bitcoin solves the fiat currency inflation problem. BTC is inflation proof due to its finite supply. No government, central bank, or any other financially irresponsible institution has the ability to create more Bitcoin and dump it into the supply. Once there is no more Bitcoin to be mined, that is it. This leads into the second component of Bitcoin’s value coding, namely Bitcoin halvings.
Since the year 2008 at the inception of Bitcoin, a Bitcoin halving has occurred every four years, kicking off a price increase of a 10-100x each time over the course of the subsequent year. In 2012, the first cryptocurrency bull market occurred from the first Bitcoin halving. In 2016, the second bull market occurred. In May of 2020 the third Bitcoin halving took place, kicking off the bull market of 2020-21. But what exactly is a Bitcoin halving, and why does it have this incredible effect?
When Satoshi Nakamoto launched Bitcoin into the world, he did not release all 21 million Bitcoin at once. He coded the blockchain to gradually drip new Bitcoin into the supply at an exponentially slower rate over time through a process called Bitcoin mining. Bitcoin mining occurs when a node connected to the Bitcoin blockchain competes with other nodes to mine the next block in the blockchain. Whichever node solves the cryptographic puzzle wins, mines the next block, and receives the mining reward.
A Bitcoin halving simply means that the mining rewards for Bitcoin are cut in half. From the years 2012 to 2016, the reward for mining Bitcoin was 25 BTC per block. In 2016, this then halved to 12.5 BTC per block until May of 2020, when it dropped again down to 6.25 BTC. The function of this part of Bitcoin’s value coding is to amplify the scarcity of Bitcoin in tandem with its hard cap of 21 million.
Bitcoin’s value coding, consisting of the hard cap to the supply and the fact that mining Bitcoin becomes exponentially slower over time, work together to create the scarcest store of value on the planet. Currently, over 18.7 million of the total possible 21 million Bitcoin have been mined. Mathematically with the Bitcoin halvings, by the year 2030, over 20.6 of the total 21 million possible Bitcoin will have been mined. It will then take over 110 years to mine the remaining 400,000 BTC.
Consider an analogy to gold. There are only 21 million pieces of gold that can ever exist, and every four year time cycle there is exponentially less gold available to be bought each day until there is no more gold left. This is Bitcoin.
As of June 2021, Bitcoin has the same number of users as the Internet did in 1997. As cryptocurrency continues to gain mass adoption during the decade of the 2020s, the demand for Bitcoin will skyrocket as the supply rapidly dries up. This is the vision of Satoshi Nakamoto. An incredible supply shock is coming for Bitcoin next decade based on the laws of supply and demand as well as Bitcoin’s value coding that takes advantage of these laws.
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