Press "Enter" to skip to content

Can bitcoin end? Understand how the scarcity of cryptocurrency works

Bitcoin is the most traded cryptocurrency in the world, and has gained popularity in recent years. But it is not because the currency is fully digital that it is infinite. In fact, it has a maximum amount that can be generated, or mined, a name that represents the process of obtaining it.

This limit amount, of 21 million bitcoins, was already defined in the base code of the cryptocurrency by its creator, or creators, since the responsible person is still unknown.

Experts consulted by our blog claim that, in practice, this characteristic influences the behavior of the asset, its investment and use possibilities. They note that, today, the 18 million mined bitcoin mark has already been passed.

The question of scarcity

In economics, scarcity is an idea applied to any good that has a limited amount that can be produced or obtained. It is a concept that is used mainly for commodities, which are natural resources.

The idea of ​​a scarce good is that, because it has a limited amount of supply, an increase in demand ends up raising its price. And if, in theory, it would be possible to deplete all the reserves of an ore, it would also be possible to mine the entire available amount of bitcoin.

“The limited amount came in the protocol itself, the foundational text of bitcoin, which was published by an unknown entity, called Satoshi Nakamoto, which publishes between 2008 and 2009 a lean and elegant text with the suggestion of a technical protocol for the operation of a cryptocurrency” , says Edemilson Paraná, professor at the Federal University of Ceará (UFC).

For the professor, the limit is part of an idea “about the functioning and management of monetary dynamics”, that is, it seeks to determine not only that bitcoin could be used as a currency, but also works with the principle that money should be scarce.

Thus, it is common for bitcoin to be compared to gold, a metal that has already been used as currency and which also has scarcity as a determining characteristic, in addition to being obtained through a mining process.

João Marco da Cunha, portfolio manager at fintech Hashdex, says that, despite bitcoin being used as a currency, scarcity “is one of the main reasons that give credibility to the thesis of bitcoin as a store of value in the future”.

The idea of ​​a store of value is to have an asset whose invested money is “protected” from effects that affect other assets, such as variations in inflation or exchange rates during crises, and even appreciates in these scenarios.

The manager recalls that, in the case of gold, it is common for mining efforts to increase when the supply increases, as a form of balance. “Bitcoin doesn’t have that, it multiplied 5 times the price in the last year, but it can’t mine more bitcoin, the network has this mechanism to preserve the mining of new bitcoins. It is even scarcer than gold”.

This mechanism has the main objective of ensuring that, as predicted by Satoshi Nakamoto, the limit of 21 million bitcoins is only reached in the year 2140. For this, the amount supplied to miners decreases as mining increases, and the difficulty increases .

“The bitcoin emission rate is an exponential curve, it goes up very fast, but then it stays constant, so it really takes a while to emit the rest. Until 2140 it is certain that all will be emitted, but the idea is that at this end of the curve very little is emitted. The forecast is that the remaining majority will be issued by 2040”, says Rodrigo Zobaran, quantitative analyst at Kinea Investimentos.

In theory, a currency should have three functions: to be a store of value, a unit of purchase, and a medium of exchange. For Paraná, the decentralization of bitcoin itself, without a central entity such as a bank, makes it difficult to use it as money.

“Money is not a thing, a commodity, it is an instrument for representing wealth, that’s why there are institutions that guarantee this dynamic. Money is not neutral, exogenous, it has particular properties to perform its functions, and it does not have to do centrally with the character of a commodity, of being something scarce”, he says.

Cunha says that, in order to be used as a digital payment method, bitcoin needs to increase the volume of transactions it can process, which is still low.

“The bitcoin community a few years ago made a decision not to increase this capacity, they want to keep it, focus on the store-of-value function, but that doesn’t mean they abandoned the original function,” he says.

Is bitcoin the new gold?

Rodrigo Zobaran says that, although bitcoin is seen today as a good asset to protect against inflation, as its limited supply would lead to its appreciation, the behavior of cryptocurrency is even more influenced by demand, which generates volatility.

“The offer is fixed, but a lot of people come in for news and think it’s going up, and a lot of people leave because they lost money, they’re afraid of regulations, that gives the dynamic. For now what matters is how the market forces are doing”, he says.