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I'm a newbie to crypto/blockchain, but I'm very excited about the possibilities. Given how passionate folks can be about the subject, I want to be very clear that I'm not trying to indict Bitcoin or cryptocurrencies in general. I'm trying to understand how the whole thing works.

My understanding is that there is a limit on the number of Bitcoin that can ever exist; 21 million bitcoin. Therefore, one of the merits of Bitcoin as a store of value is that more Bitcoin can't be "printed" like the Fed "prints" dollars.

I have also learned that one can exchange Bitcoin for other cryptocurrencies with limited issuance like Litecoin. And, presumably, nothing prevents another cryptocurrency from being created with similar rules...etc.

So, is Bitcoin - as a store of value - really limited? If all the currencies like Bitcoin are interchangeable, what is the effective difference between them? In 10 years, why do I need to have value stored in Bitcoin vs. Litecoin vs. any other similarly constructed asset? In theory, shouldn't all the capital flow evenly into all these currencies? Again, assuming they are interchangeable.

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Yes Bitcoin is deliberately limited in that there can never be more than about 21 million BTC.

No the existence of other forms of money does not affect this characteristic of this particular form of money. It is an intrinsic characteristic.

Yes the potential for new forms of money means that money in general is unlimited in terms of the sum of the numbers printed on the front of banknotes etc - but this number isn't especially meaningful. The actual collective value of all available forms of money is determined by external factors.

None of this affects that there can never be more than about 21 million BTC. Bitcoin is truly scarce in that sense. This is true whether it takes 10,000 BTC to buy a pizza or a nanosatoshi to buy a Ferrari.

There's little point in indulging in philosophical wrangling over this. The only significant effect of this form of scarcity is a deflationary influence on the value of Bitcoin. Or at least the lack of an inflationary influence at a large scale or in the longer term. There are other things that have inflationary or deflationary influences on Bitcoin. That is, external factors that influence its value either way.

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  • This text should come with notice, scarcity doesn't mean that it can only go up.
    – ram4nd
    Apr 22, 2021 at 9:27

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