Bitcoin's total supply cap of 21 million: Deflationary risk or scarce value?

The total supply limit of Bitcoin is one of its most notable features, sparking considerable discussion about its pros and cons. Some argue that this limitation can prevent Inflation, while others worry it might lead to deflation. So, is this supply cap ultimately a weakness or a strength of Bitcoin?

It is worth noting that the actual total amount of Bitcoin is 21 million, not 21 million. In the design of Bitcoin, the founder set its total amount to 21 million pieces, and as the mining progresses, the difficulty will gradually increase. It is estimated that the last Bitcoin may not be mined until the year 2140. This design is regarded by many as an extraordinary foresight.

However, this total supply limit has also become a reason for some critics to attack Bitcoin. They point out that considering the global GDP reached 74 trillion dollars in 2017 and the M2 supply of the dollar approached 14 trillion, using a limited amount of Bitcoin as the main currency could lead to serious deflation.

But this concern may overlook an important fact: Bitcoin can be infinitely subdivided. The smallest unit of Bitcoin, "Satoshi", is only one hundred millionth of a Bitcoin. This means that the actual magnitude of Bitcoin is not 21 million, but rather 21 trillion. If in the future 1 Satoshi can be exchanged for 1 dollar, then the total amount of Bitcoin will reach 21 trillion dollars, a scale sufficient to meet humanity's trading needs.

Even in the future, if the scale of human economic activities exceeds this amount, we need not worry excessively. Just as humanity created Bitcoin, it is also possible that other forms of currency will be created in the future. In fact, there are already thousands of cryptocurrencies on the market today, such as Litecoin, Ethereum, and EOS. This situation is similar to ancient China, when gold was insufficient to meet the demand for currency, people turned to using silver, copper, and even shells as mediums of exchange.

A key difference between Bitcoin and fiat currency is that the issuance of cryptocurrency is an endogenous result of the market. Miners need to invest costs to obtain Bitcoin, and the services they provide are essentially no different from those of other producers. Furthermore, the capped supply of Bitcoin gives people an expectation of scarcity, which is an important support for its value. In contrast, fiat currencies often face the issue of continuous depreciation due to the absence of an issuance limit.

The design of Bitcoin both limits its total supply and allows for infinite divisibility, a mechanism that many consider almost perfect. It provides new answers to the monetary questions that humanity has been exploring for millions of years, including how much currency society needs, who should be the first to receive newly created currency, and who has the right to produce currency. In these respects, Bitcoin offers unique and valuable solutions.