Introduction
One of the most fundamental concepts to understand about what makes Bitcoin so valuable is its absolute scarcity. There will only ever be 21 million Bitcoin. Each one can be split into up to 100 million units, called “Satoshis” or “SATs.”
As the value of Bitcoin denominated in other goods continues to increase, people will begin to think more in terms of SATs rather than Bitcoin. This is because only the very richest people and companies in the world will be able to own more than one Bitcoin (100M SATs) due to its scarcity.
This scarcity is enforced by the code of the Bitcoin software and the hundreds of thousands of Bitcoin node operators who validate transactions all over the world. These operators have a financial incentive to retain the Bitcoin network consensus rules.
A Thought Experiment
This thought experiment is intended to help you “see” why Bitcoin’s digital scarcity is a game changer when considered alongside its other qualities.
Currently, there are around 59.4 million millionaires in the world. If you take it at face value that there will be 21 million Bitcoin (though there will actually be far less due to lost Bitcoin), and you split these 21 million Bitcoin evenly among every millionaire, it works out to:
0.35353535 BTC (or around 35 million SATs) per millionaire on Earth.
Today (as of December 9, 2023), you can buy 0.35353535 Bitcoin (or 35 million SATs) for £12,300. However, this assumes only millionaires will want Bitcoin, which is not the case. It also assumes Bitcoin is evenly distributed, which it is not.
Extending this thought process to account for everyone on the planet today, the math looks like this:
21 million Bitcoin divided by ~8 billion people = 0.002625 Bitcoin per person.
This means if Bitcoin were equally split between everyone on Earth, there would be enough for just 0.002625 BTC (or 262,500 SATs) per person. However, Bitcoin, like other assets, will never be split 100% equally due to factors such as wealth distribution, geographic location, and personal decisions.
However, the biggest effect on how much Bitcoin you’ll have in the future will be how early you buy it…
Generally speaking, someone with a low income who bought Bitcoin ten years ago could afford more than a multi-millionaire can today. The earlier you buy Bitcoin (assuming you don’t panic sell during volatile periods), the more purchasing power you’ll have in the future.
The True Bitcoin Available Supply
It’s important to understand that there are far fewer than 21 million Bitcoin actually available for sale. There are two types of Bitcoin available:
- Newly issued Bitcoin (block subsidy or miner reward), which miners receive when they mine a block.
- Already mined Bitcoin from the past 14 years.
Approximately 96% of the total Bitcoin supply has already been mined. In case you don’t know what mining is, the high level is that its the process of spending energy doing “proof of work” in order to produce Bitcoin.
It’s analogous to mining Gold. You must expend a lot of energy in order to get Gold out of a mine to above the ground.
Similarly with Bitcoin, you must expend a lot of electrical energy to successfully mine a Bitcoin block, which is what contains the information for the transactions.
Sidenote: If you believe that Bitcoin mining is bad for the environment, this is a myth propagated by financially incintivised (i.e. paid off) politicians who work for the banking industry, as well as “shitcoin” projects such as Ethereum and XRP (who have an even greater profit motive). The idea has been thoroughly debunked by experts in the field, as opposed to people with paid political agendas and chancers trying to get rich on the coat tails of the true innovation, which is Bitcoin.
Looking ahead, Part 2 will explore Bitcoin’s mining process and inflation schedule in greater detail, uncovering how these elements drive its scarcity and long-term value.
