In discussions on the intrinsic value of BTC, one often reads the claim that BTC is scarce because the maximum amount of BTC that can ever exist is 21 million BTC. I find this explanation rather unsatisfactory.

If a group of people collectively decide to move all their savings into tulips, the price of tulips should skyrocket. However, new greenhouses could be built and some farmers could start growing tulips. As a result, the price of tulips would start falling and converging to the price prior to the "tulip mania". Seeing the value of their savings dropping, these disappointed tulip-lovers might rush to sell their tulips, causing the price of tulips to plummet. The media would then mock them for their financial illiteracy.

If the former tulip-lovers then decided to move their savings into gold, the price of gold would almost certainly rise suddenly. However, new gold reserves cannot be manufactured out of, say, lead — assuming that no form of working alchemy is developed, of course. Without the required increase in the supply of gold, the price of gold would stay "inflated" and there would be no panic-selling. A computer scientist would perhaps say that the supply of gold is rate-limited.

I know nothing about economics, but I suppose an economist would say something along the lines of "the supply of gold is much, much more price-inelastic than the supply of tulips". To me, BTC looks closer to digital gold than to digital tulips.

Questions — As a total novice, the scarcity pertaining to BTC I do see is in the rate at which new BTC can be generated. But, what exactly does that have to do with the number 21 million? When mentioning the total amount of Bitcoin that can ever be mined, shouldn't the practical upper bound on annual mining also be mentioned? Is my understanding of "Bitcoinomics" roughly accurate?

5 Answers 5


First of all to quickly address the gold comparison. Even gold isn't really scarce, we now have multiples of the gold we had 100 years ago, in part due to technological advancement, which made mining gold easier. Bitcoin is truly revolutionary because the issuance of new Bitcoins isn't even linked to the amount of energy used. It is linked to time itself. Without going too deep into the technical details, Bitcoin gets "harder to find" the more energy you use.

The reason for the absolute cap in supply is in the halving of rewards. The way new Bitcoins enter the existing supply is if you find a block, which is essentially just guessing the right number. Approximately every four years this reward is halved, resulting in an ever decreasing increase in supply.

It is halved more specifically every 210,000 blocks and again as mentioned, new blocks require time to be found, which is why we can estimate the 4 years and that the supply will be maxed approximately in the year 2140.

A nice orange pill that doesn't relate directly to the question, but more to the content of the question which I found absolutely astonishing when I first heard about it:

As you correctly point out an increase in the demand leads to an increase in the incentive to produce more of that thing. This is pretty nice, because it allows everyone to have a tulip for example, or a house. The fact that supply of these things isn't limited is what allows us all to have better and better lives.

The problem with stuff like gold is, that the supply increases rather slowly. The result of this is, that all the people who would actually use the gold "suffer" because gold became much more expensive than its use case would justify. People (mostly) buy gold because they want to keep their economic value, not because they want to use it.

With Bitcoin you don't have this problem. Not only does no-one suffer from you holding on to your Bitcoin, in the sense that you are not "stealing" potential consumption from someone - if Bitcoin truly is the best store of value ever, this will allow everything else that is currently "artificially" inflated to get much, much cheaper. Houses are inflated in their price because they tend to hold their value. But houses are ultimately valuable because people want to live in them. Think how much cheaper houses could get if only people weren't incentivized to dump their money into them, and instead would only buy them because they actually want to use them. This applies to everything else which is why Bitcoiners often say: Fix the money, fix the world


Units are arbitrary, as your illustrated with the gold example. Scarcity is not about how much there is of something. It's about how much there won't be of something.

Let me paint another example. Wood - there is a lot of wood out there, but in the end, you can count it, and it's a number, say 10^15 cubic meters; one cubic meter per satoshi. Yet, we wouldn't say wood is scarce, while satoshis are. Why? Anyone can create more wood. An individual can plant trees. Companies can cultivate fast growing trees. Governments can create new land only used for wood creation.

With bitcoin, no one can do that. No individual can create their own BTC*. No company can create Bitcoin for themselves. And no government has the power to influence how many there are**.

*You can mine, but that 'creates' your own at the expense of someone else not mining it

**Notably, governments can create USD/EUR/.. to their liking, but not BTC


In discussions on the intrinsic value of BTC, when people write about scarcity I think they just mean that the supply is capped, that the difficulty of finding new bitcoins is increasing.


You are correct that because 1 BTC = 100,000,000 satoshi there will be plenty of units for everyone. But, each of those satoshi units may eventually by as valuable as a dollar today. Then, how much would 1 BTC be worth ? Answer: 100 million dollars. Even if a satoshi only reaches the value of 1¢ ( $0.01 USD ) then still 1 BTC = 1 million dolars.

With the total supply (of either bitcoins or satoshis) limited to a fixed number (either 21 million bitcoins or 2.1 peta satoshis) their adoption and demand can only mean that their value goes up.

Scarcity is a relative concept. The world population today is roughly 7.6 Giga Persons. For illustrative purposes consider: 21,000,000 bitcoins / 7,600,000,000 persons = 0.00276315 bitcoins per person, or 276,315 satoshis per person. But when/if the world population reaches 15 GigaPersons, then it's only 140,000 satoshis per person, (in the admittedly unrealistic case of an even distribution). This is relatively scarcer.

The population of the world is going up continually, and if (as a human species ) we transition to a more sustainable growth model (less consumption and more efficient use of natural resources) conceivably the world population could sustainably double or triple. But Bitcoin, according to the law written into the source code, and sustained by the worldwide P2P network, will never exceed that 21 million number.

  • I had thought of the 1 Satoshi = 0.01 USD scenario, which implies that all 21 million BTC would be worth 21 trillion USD, approximately the GDP of the United States. If the price of BTC increased monotonically, then people would hoard. The incentive would be to mine and hold. There is also plenty of gold at Fort Knox, but gold is still viewed as scarce, probably because central banks like to maximize their gold reserves. May 17, 2018 at 18:27
  • Increasing adoption of BTC matters more than the growth of the world population. Right now very few people own any bitcoin. A common example given is that there aren't enough bitcoins for every millionaire on the planet to be able to buy just one whole coin.
    – Abdussamad
    May 17, 2018 at 20:16

It's scarce in the sense that supply is fixed, and doesn't alter according to demand. If demand for tulips rises, so is their supply. If demand for houses rises, so is their supply. If demand for bitcoins rises, supply doesn't.

It has a completely inelastic supply. If there was no such thing as "difficulty", it wouldn't be scarce at all.

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