Bitcoin Supply Cap: Defect or Advantage?

The total supply of Bitcoin is capped at 21 million coins, a setting that has sparked different opinions. Some believe this is an advantage of Bitcoin, as it can prevent inflation; others think it is a fatal flaw that could lead to deflation. So, is this supply limit a weakness or a strength of Bitcoin?

First, it is necessary to clarify a common misconception: the smallest unit of Bitcoin is "Satoshi", and 1 Bitcoin equals 100 million Satoshis. Therefore, the actual maximum quantity of Bitcoin is 21 million, not 21 million. If in the future 1 Satoshi can be exchanged for 1 dollar, the total supply of Bitcoin would reach 21 trillion dollars, which would be enough to meet global transaction demands.

Even in extreme circumstances, a circulation of 21 trillion will still not meet demand, and humanity will not fall into distress because of it. Just as we created Bitcoin, it is also possible to create other digital currencies in the future. In fact, there are already thousands of cryptocurrencies on the current market, such as Litecoin, Ethereum, and EOS. This is similar to the ancient practice of using gold, silver, copper coins, and even shells as currency; humanity always finds alternatives.

Some may question, since they criticize fiat currency for its unlimited issuance, why they support such a large number of Bitcoins? There are two key differences here:

1. The issuance of digital currency is an endogenous result of the market. Miners incur costs, increase liquidity, and create value, which is essentially no different from producing other goods and services. In contrast, the issuance of fiat currency is not constrained by market laws.

2. Bitcoin has a clear limit on its quantity, while fiat currency can be issued indefinitely. It is this expectation of scarcity that gives Bitcoin its value. Just like the limited reserves of gold or the fact that an artist's works no longer increase after their death, scarcity often enhances value.

Bitcoin has both a cap on its total supply and can be infinitely subdivided, making this design quite ingenious. When Bitcoin appreciates, miners can increase their mining or further subdivide units. This flexible monetary mechanism largely addresses many long-standing issues faced by traditional monetary systems, such as money supply, initial allocation rights, and production rights. From this perspective, the quantity setting of Bitcoin may be one of its greatest advantages.