21 million. This is the number of units chosen by Satoshi Nakamoto when he created Bitcoin. Today, there are an estimated 19 million Bitcoins in circulation. As insignificant as this may seem, this information is essential to grasp the relevance of Bitcoin. When Bitcoin is compared to digital gold, most people fail to understand how it can be compared to gold. Precisely because they don’t know that there are only 21 million of them.
From currency to store of value
Bitcoin appeared as the very first crypto-currency in history in 2009, but is no longer considered a currency in the strict sense of the word. In other words, a stable medium of exchange that can be used for everyday purchases. As with euros or dollars, for example. That said, these days, Bitcoin is associated with a store of value. But how is this possible?
Creating a scarcity effect
Satoshi Nakamoto made a crucial decision when creating Bitcoin, limiting its money supply to 21 million units. The aim of this decision was to create a scarcity effect in the operation of the crypto-currency. Inspired by rare metals such as gold, silver or bronze, Satoshi Nakamoto sought to reproduce the dynamics of a gold rush around Bitcoin, with the aim of increasing its value over time.
The idea behind this limitation is simple: the rarer an asset, the more valuable it tends to be. By restricting the supply of Bitcoins to just 21 million units, Nakamoto has created an intrinsic scarcity that fuels interest and demand for this crypto-currency. This programmed scarcity encourages people to acquire Bitcoins in the hope of benefiting from their potential long-term increase in value.
One of the main benefits of this strategy is protection against inflation. Many countries, including France, face high inflation rates, as indicated by Insee with inflation at 6.8%. Inflation reduces the purchasing power of traditional currencies over time, as their supply is not limited. In contrast, thanks to its limited money supply, Bitcoin escapes this inflationary risk, offering an attractive alternative for those seeking to preserve the value of their long-term savings.
By creating an ecosystem where scarcity is intrinsically linked to value, Satoshi Nakamoto has introduced a unique economic dynamic into the world of crypto-currencies. This strategic decision has led to growing interest in Bitcoin as a long-term store of value, as well as a decentralized and secure means of payment.
The gold rush means miners
A bitcoin transaction
Imagine you want to send bitcoins to a friend. Let’s say you want to send €100 worth of bitcoins. When you trigger your transaction, you will automatically be presented with a complex mathematical problem.
This problem is designed to ensure maximum security for the transaction about to take place. So, for your transfer to take place, you need to solve this mathematical problem. But you don’t have the computing power to do it.
That’s when someone else steps in to solve the problem imposed on you, using their own computing power. Once they’ve solved the mathematical problem, you’ll be able to transfer €100 worth of bitcoins.
In exchange for enabling you to make a transaction to your friend, you’ll give a reward in bitcoin to the person who helped you (this is the transaction fee). This is known as “proof of work”.
Digital gold
Every 4 years, the difficulty of mathematical problems increases, and the rewards for solving them decrease. This is known as “halving”. As a result, obtaining bitcoins by solving problems, and therefore validating transactions, becomes increasingly complicated.
And what happens when the chances of finding bitcoin are slim? Its value increases dramatically. After all, there are only 21 million units. So much so that every 4 years, Bitcoin rises so sharply that it surpasses its former highs.
By analogy with the gold rush, the people who validate users’ transactions are known as “miners”. Their computational powers, which could be likened to picks and shovels, are used to search for Gold, in other words, Bitcoin.
But as gold becomes increasingly scarce, due to the growing number of miners exploiting it, finding Bitcoin becomes much more difficult (halving). With a limited quantity of 21 million, a single gold nugget has immeasurable value. And this value continues to grow over time.
Long-term growth
So, to hold gold, or at least Bitcoin, is to hold a reliable store of value that only increases over time. Today, an estimated 19 million Bitcoins have been mined since its inception in 2009. And, as you may have guessed, the closer we get to the 21 million mark, the higher Bitcoin’s value will rise. Leaving room for several scenarios concerning its future evolution.
2030: Bitcoin at $1 million
Cathie Wood, CEO of the Ark Invest investment fund, stated at the Bitcoin 2022 event, held at the Miami Beach Convention Center, that by 2030, Bitcoin will be worth $1 million. Although this scenario is highly optimistic, it is nonetheless consistent. This is because of Bitcoin’s technical properties (halving, miners, 21 million units), which have meant that Bitcoin has been growing almost relentlessly since 2009.
At the time of writing, Bitcoin is worth $21,533. Since November 2021, Bitcoin has experienced a major decline. From $60,000 to its current price. But if we assume that the next halving will take place in 2024, the previous one having taken place in 2020, it’s highly likely that Bitcoin will rise again to exceed its former high.
