As Bitcoin’s price continues to climb, it helps to understand one of the basic principles that cause this to happen. While there are a number of reasons why Bitcoin has value, the primary cause of the price continually climbing is that the demand is growing faster than the supply.
The Supply of Bitcoin
One of the most important elements of Bitcoin is that each bitcoin (or fraction of a bitcoin) is a piece of information that cannot be duplicated or counterfeit. The ability to create a digitally scarce piece of information is actually an incredible achievement. As it turns out, information that can’t be duplicated or counterfeit makes for the basis of an amazing money system.
The total supply of new bitcoins is hardcoded in the Bitcoin software that is run by the bitcoin miners. The total supply is hard-capped at 21 million BTC with the supply of new coins currently (May 10th, 2019) at 12.5 BTC approximately every 10 minutes. Sometime in May of 2020, the supply of new coins will be cut in half which will reduce the supply of newly mined coins to just 6.25 BTC every 10 minutes. This process takes place every 210,000 blocks (approx 4 years) and is commonly called “The Halvening”
What’s also interesting is that the next halvening will reduce the supply of new bitcoins coming into existence to less than that of gold and the US dollar.
Since the Bitcoin Blockchain is public and open-source, anyone can see all of the coins on the blockchain and mathematically verify that the total supply of bitcoins in existence is 100% solvent. Currently, there is no national currency that is capable of doing that. That’s pretty powerful.
Now let’s look at the demand for Bitcoin.
The Demand for Bitcoin
When Bitcoin first began, the demand was limited to a few cypherpunks, nerds, hackers and cryptographers.
It wasn’t until May 22nd of 2010 that a bitcoin miner named Laszlo Hanyecz made a post on a Bitcoin forum saying that he would pay 10,000 BTC to anyone who was willing to buy 2 pizzas and have them delivered to his home in New Jersey. It was on this infamous day that the market demand for Bitcoin was born because a purchaser in the UK too Laszlo on his offer and had 2 pizzas delivers from Papa John’s. This day is celebrated every year by bitcoiners as Bitcoin Pizza Day.
Fast forward to today and the demand has increased far beyond 10,000 BTC for 2 pizzas. Now you are more likely to be able to buy 1,000 pizzas with 2 Bitcoin.
Demand for bitcoin is always changing. Some people may want it so they can use it to buy goods and services while others may want it to use it for savings (HODLing) and others may only care about trading it for insane fiat gainz. No matter the reason, the demand continues to grow as time goes on.
Currently, the demand for bitcoin rises and falls quite a bit based on countless dynamics like awareness, education, news, politics, laws, security, hacks, banks, speculative trading, and others. All of these dynamics combined are what will continue to drive future demand.
Now let’s look at where the supply of bitcoin meets the demand.
Bitcoin Supply Meets User Demand
Since bitcoin’s supply is digitally limited by the public nature of the blockchain, there is only so much BTC to be distributed amongst all of the demand around the world. When the demand for Bitcoin increases without a relative increase in the supply, the price increases.
As more and more people around the world begin to see bitcoin’s potential not just as some sort of speculative game or get rich quick scheme and start to realize its potential to completely change the way that business transacts around the world, the supply will slowly dry up and the price of BTC will climb.
Why Use Bitcoin?
Bitcoin is not controlled by any centralized institution and as a result, it is not vulnerable to a glut in the supply which causes hyperinflation.
When you use Bitcoin, you are helping to reduce the available supply at exchanges while also increasing the demand. If you are looking for a way to save at least some of your money, do some research on Bitcoin. The limited supply combined with the increasing demand year after year is going to do more to bring about a higher standard of living around the world than any fiat currency.
Bitcoin is also currently mathematically verifiably profitable if you’re willing to HODL for at least 210,000 blocks. This may change in the future if the demand fades.
Additional Resources
You can see the total number of Bitcoins that are currently in existence with this block reward tool, Bitcoin Block Half.
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