Bitcoin's Supply Cap: Advantage or Disadvantage?

The total supply of Bitcoin is limited to 21 million coins, a setting that has sparked differing opinions. Supporters argue that it can prevent inflation, while critics worry it may lead to deflation. So, is this cap on quantity ultimately an advantage or a disadvantage for Bitcoin?

First, it is important to clarify a common misconception: the actual usable amount of Bitcoin is far more than 21 million. While the total supply is indeed set at 21 million coins, each Bitcoin can be subdivided into 8 decimal places, with the smallest unit being "Satoshi," which is equivalent to one hundred millionth of a Bitcoin. This means that the actual maximum magnitude of Bitcoin is 21 trillion Satoshis, not 21 million coins.

If the value of one Satoshi can reach 1 dollar in the future, then the total value of Bitcoin will reach 21 trillion dollars, which is enough to meet the demands of global economic activity. Even in extreme cases, this amount would still not be sufficient, and humanity is fully capable of creating new digital coins to supplement.

Currently, there are thousands of cryptocurrencies in the market, such as Litecoin, Ethereum, and EOS. This diversity reminds us that, just as ancient societies used gold, silver, copper coins, and even shells as mediums of exchange, humanity always finds suitable ways to trade.

A key difference between Bitcoin and fiat currency lies in their issuance mechanisms. The creation of Bitcoin is an endogenous result of the market, obtained by miners who incur costs and provide services. In contrast, the issuance of fiat currency is often determined by central authorities and does not necessarily reflect market demand.

Another important reason for setting a total supply limit is to create expectations of scarcity. Just as gold and artworks maintain and appreciate in value due to limited supply, the fixed total amount of Bitcoin also gives it similar value attributes. This sharply contrasts with fiat currency, which can be issued infinitely and often faces the risk of continuous devaluation.

The design of Bitcoin cleverly balances scarcity and divisibility. As value increases, convenience in transactions can be maintained through finer divisions. This mechanism provides innovative ideas for addressing ancient questions such as "how much money does society need," "who should be the first to receive new money," and "who has the right to produce money."

Overall, the cap on the number of Bitcoins is one of its core advantages, not a flaw. It not only offers the potential to combat inflation but also ensures sufficient liquidity through divisibility. This currency mechanism, which combines scarcity and flexibility, may provide an inspiring answer to the ideal currency system that humanity has long been exploring.