Why is bitcoin supply curve as it is?

[Heaviside]

Hey guys,

Why does the number of bitcoins in circulation follow a log-curve, and not linear (or perhaps of another shape)? What are the advantages of this approach?

[RodeoX]

My understanding is that is to create a diminishing return like that found in a resource like gold. That is to say, there is always more gold to be mined, but it gets harder to produce an ounce every year. That keeps upward pressure on the price.

[orsana]

It's a log-curve because the block reward that miners get for solving a block halves every 4 years.

If you want to understand why this is the case I would recommend reading the original whitepaper.

[Gator-hex]

It's a natural result of log math (when you find something, there are less left to find, so it gets harder)

but I always suspect it's to get the technology to evolve to a point where it can the most efficient it can be.

If it was a straight line we'd all still be doing it with a PC like Litecoin.

[qwertyGuy]

It's to get the technology to evolve to a point where it can the most efficient it can be.

If it was a straight line we'd all still be doing it with a PC like Litecoin.

Litecoin has block reward halving every 4 years as well, but not even FPGA yet. I believe to get the technology to evolve it must be profitable, which Litecoin is not, so no FPGAs yet

[Gator-hex]

It's to get the technology to evolve to a point where it can the most efficient it can be.

If it was a straight line we'd all still be doing it with a PC like Litecoin.

Litecoin has block reward halving every 4 years as well, but not even FPGA yet. I believe to get the technology to evolve it must be profitable, which Litecoin is not, so no FPGAs yet

Litecoin uses the Script algorithm, which makes heavy use of memory, to keep it on PCs and stop people gaining a mining advantage by using FPGAs/ASICS. They compensated for this by making the blocks easier to solve which strangely makes a 51% attack less likely.

[hashturbator]

It is due to the manner in which new BTC are minted. Originally, block rewards were meant to 1) introduce and distribute the coin, and 2) reward the miners for processing transactions in creating the blockchain - important to incentivize mining when value was next to nonexistent in the beginning.

As RodeoX says, by mimicking a natural and finite resource like gold, it provides a larger workable base of coins much sooner for a developing market than a linear distribution, keeps upward pressure on value via scarcity, and rewards early adopters.

[Gator-hex]

The value of each crypto coin will ultimately be determined by the number of transaction we see in the system so it's important to get stores using them to get them in circulation.

Eventually the only reward will be the transaction fee, which currently many mining pools do not share with their miners which sux!
https://en.bitcoin.it/wiki/Comparison_of_mining_pools

[qwertyGuy]

It's to get the technology to evolve to a point where it can the most efficient it can be.

If it was a straight line we'd all still be doing it with a PC like Litecoin.

Litecoin has block reward halving every 4 years as well, but not even FPGA yet. I believe to get the technology to evolve it must be profitable, which Litecoin is not, so no FPGAs yet

Litecoin uses the Script algorithm, which makes heavy use of memory, to keep it on PCs and stop people gaining a mining advantage by using FPGAs/ASICS. They compensated for this by making the blocks easier to solve which strangely makes a 51% attack less likely.

Yes, it is possible to make ASICs with big relative fast memory included, to outperform GPUs in power consuptions, but who is going to spend up to 1 mil USD fr development when the Litecoin mining is not much profitable? Ony preorder based investing could do it, but there is little profit to be made

[Gator-hex]

It's to get the technology to evolve to a point where it can the most efficient it can be.

If it was a straight line we'd all still be doing it with a PC like Litecoin.

Litecoin has block reward halving every 4 years as well, but not even FPGA yet. I believe to get the technology to evolve it must be profitable, which Litecoin is not, so no FPGAs yet

Litecoin uses the Script algorithm, which makes heavy use of memory, to keep it on PCs and stop people gaining a mining advantage by using FPGAs/ASICS. They compensated for this by making the blocks easier to solve which strangely makes a 51% attack less likely.

Yes, it is possible to make ASICs with big relative fast memory included, to outperform GPUs in power consuptions, but who is going to spend up to 1 mil USD fr development when the Litecoin mining is not much profitable? Ony preorder based investing could do it, but there is little profit to be made

That was the point, to make it so expensive, coin production couldn't be concentrated into the hands of the few.

[jerelimZ]

The value of each crypto coin will ultimately be determined by the number of transaction we see in the system so it's important to get stores using them to get them in circulation.

Its already this way and will continue. Bitcoin is not better than other alt-coins, it is just most used, best merchant support, biggest development team and highest hashing thus most secure. That is what gives Bitcoin such value

[Lauda]

Maybe because it was predefined like this due to wanting to be similar to supplies like gold I think?

[hashturbator]

The value of each crypto coin will ultimately be determined by the number of transaction we see in the system so it's important to get stores using them to get them in circulation.

Eventually the only reward will be the transaction fee, which currently many mining pools do not share with their miners which sux!
https://en.bitcoin.it/wiki/Comparison_of_mining_pools

I believe that in time, we'll see considerably larger rewards exclusively from transaction fees than we have ever seen from new coin in block rewards. Within the last few weeks, I had seen a block reward at Slush's pool that included between 6-8 BTC in transaction fees alone for a 30+ BTC reward. I've forgotten the exact figure now... In any case, BTC mining will be spawning an entirely new professional industry - only instead of being called "miners", we'll call them payment processors - and we are currently in the early stages of such evolution.

The value of BTC, or any currency for that matter, is not so much based upon the number of transactions being processed, but rather supply and demand.
Group A doesn't want to spend more than X-1 < X (BTC value) < Group B won't sell for less than X+1

[Lauda]

This is for the best.

[zubelutte]

I believe bitcoin supply curve is halving every 4 years as an experiment. It could be 1 year, 10 years, only -25% or whatever else. No one know what would be best, so lets hope the initial Satoshi decision was ok 

[Lauda]

I believe bitcoin supply curve is halving every 4 years as an experiment. It could be 1 year, 10 years, only -25% or whatever else. No one know what would be best, so lets hope the initial Satoshi decision was ok 

It should be. The less, the better.

[t3xasdolly]

This is based somewhat on the expectation that bitcoin value and transaction fee will motivate miners to mine.

But so far it doesnt look like transaction fees could be enought. We will see...

[Heaviside]

Thanks everyone,
so I see that the general consensus is that Bitcoin mimics a precious mineral. From your explanations it does seem natural, but why is it better than a linear distribution?

With a linear distribution the demand/supply ratio would still grow as Bitcoin would gain popularity (and thus difficulty would increase), so the price would still go up and bitcoins would remain scarce and difficult to obtain. Early adopters would still be decently rewarded. And since bitcoins are divisible, I don't see a problem with whether there a a lot / a few coins already in the circulation.

But a log-distribution benefits the early adopters even more and makes it less and less probable with time that a newcomer will mine, thus compromising the decentralization, doesn't it? I mean, this probability would already be dropping with the difficulty rising, and they half it every 3 years on top of that...

As I was typing this, I thought that perhaps this is designed to soften the transition from free transactions to necessary transaction fees? Perhaps they were afraid that an abrupt change would shatter the network in some way? (though not a good enough for me reason still...)

What do you think?

[Sythyn]

Hey guys,

Why does the number of bitcoins in circulation follow a log-curve, and not linear (or perhaps of another shape)? What are the advantages of this approach?

If you have unlimited supply, Bitcoin would be priced at 0.01$ and not 1000$....

[Heaviside]

Hey guys,

Why does the number of bitcoins in circulation follow a log-curve, and not linear (or perhaps of another shape)? What are the advantages of this approach?

If you have unlimited supply, Bitcoin would be priced at 0.01$ and not 1000$....

Sorry, I implied that we cut off the supply at the same time (~2140) with the same eventual amount of bitcoins.