Scarcity is one of the leading factors of Bitcoins value

[JessicaVL]

Bitcoin is the largest digital currency in existence today, both in terms of market capitalization and price. While a lot of people attribute Bitcoin’s value to different reasons, such as adoption and increased use, we can also agree that scarcity is one of the leading factors in Bitcoin’s value.

From the beginning, Satoshi Nakamoto, who is the creator of Bitcoin designed it in such a way that the product would be scarce. The reasons are deliberate, and over the years we have seen the effect of such reasons come into play.

Here is what Satoshi Nakamoto had to say with regards to making Bitcoin scarce:

"As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: boring grey in colour, not a good conductor of electricity, not particularly strong [..], not useful for any practical or ornamental purpose ... and one special, magical property: can be transported over a communications channel".

In the above quote, you will notice that the key properties of Nakamoto’s description is that the “metal” is scarce, and can be transported over a communications channel. Those are the two fundamental platforms on which Bitcoin’s value is built.

To achieve the goal of making Bitcoin scarce, two key elements were implemented in the Bitcoin protocol:

- There is a limited number of Bitcoins that will ever be produced

- There is a systematic reduction in the amount of new Bitcoins produced, known as a Bitcoin Halving.

Limited number of Bitcoins

There will only ever be 21 million Bitcoins created. This is an intrinsic part of the protocol on which the cryptocurrency runs. Therefore, even when all the Bitcoins have been mined, as more people find use cases for it, the demand will increase and we know what that means. Increasing demand for a limited commodity makes it scarce, which automatically results in an increase in value. This is a basic economic principle.

https://www.youtube.com/watch?v=AABkJ55Zz3A

Even while we have not yet mined all 21 million Bitcoins, what we have seen in the past decade is a reflection of this principle. The awareness of Bitcoin has grown over the years, especially in the later part of this past decade. More people have entered into the ecosystem and the demand for Bitcoin has increased. The result of this is quite obvious, as the value of the cryptocurrency has risen within this same period.

Apart from more people wanting a portion of the limited Bitcoins that are available, there are other factors that have led to increased scarcity. Wallets whose owners have lost their private keys, and even Bitcoin wallets whose owners have died, means that the number of Bitcoins have dropped. What does this imply? Increased scarcity. This explains how scarcity is one of the leading factors of Bitcoin’s value.

Bitcoin Halving

Again, if you are familiar with some of the important terms in the Bitcoin ecosystem, then Bitcoin halving would not be all that new to you. However, let’s dive into what Bitcoin halving really means.

Within the original Bitcoin protocol is a systematic method of introducing new Bitcoins into the network. This is the process that we call mining, where computer processors are used to solve difficult algorithmic problems. This process of finding solutions to the problems leads to the verification of transactions on the network. It is a competitive exercise for the computers involved, and the first to solve a problem is rewarded with new Bitcoins. This is what Bitcoin mining is all about.

https://twitter.com/BitcoINstagram/status/1186318289049444353


From the beginning, solving these problems, which equates to finding a block, attracts a reward of 50 BTC to the miner. In order to implement scarcity, Nakamoto designed that this reward will reduce with time. Hence, after every 4 years, the number of Bitcoins that are earned per block is halved. So far, there has been two Bitcoin halving events, leading to a block reward of 25 BTC, and now 12.5 BTC per block. The next Bitcoin halving event will happen in May 2020, and the block reward will reduce even further to 6.25 BTC per block.

Conclusion

You have to bear in mind that while the rate of Bitcoin supply is diminishing, more people are finding their ways into the Bitcoin ecosystem. There is no mystery behind it, but simple common-sense economics. This is why you may have noticed a lot of investors using platforms like Vertex.Market to stock up on their personal Bitcoin supply.

Many people who are purchasing Bitcoin lately are doing so in anticipation of an increase in value down the road, especially with another Bitcoin halving event just around the corner. Especially coupled with the fact that the cryptocurrency is assuming the role of digital gold even more with its scalability issues.

Scarcity is one of the leading factors of Bitcoin’s value and it is an idea that was deliberately implemented from the beginning. Many key players in the industry are already making predictions about the future value of Bitcoin, having considered the effect of the scarcity along the way. In November 2018, ex-hedge funds manager, Mike Novogratz predicted that Bitcoin will recover and return to the $20,000 highs of late 2017.

https://medium.com/@official_83664/scarcity-is-one-of-the-leading-factors-of-bitcoins-value-d0e149d74151

[Herbert2020]

21 million cap in my opinion is not about scarcity and price but instead it is more about having a clear maximum supply and a clear predefined plan for distribution of that supply. this design was specifically chosen to fix the problem with fiat system where there is absolutely no cap and no predefined plan of supply creation. the government can print as much money as they like and that causes inflation among a lot of other economical issues.

as a side product of that, we get the scarcity and with a limited supply and an increasing demand we get the rising price. of course it should not be forgotten that the demand is an important part of that rise otherwise we have altcoins with much smaller supply that are not only worth less than bitcoin but they are losing value as time goes by even though they are supposedly scarce too.

[lobat999]

Of course! Bitcoin's limited supply was designed to influence adopters perception since from the beginning of its inception - that it is bound to be very rare according to an estimated predefined time frame.

An analogy for this is that we could liken Bitcoin's supply to very rare mineral like Diamond - assuming it has also a limited supply of 21 kilos and knowing that it will reach its max supply in due time, then most of us would likely expect its price will go up due to its rarity and would do our best just to get a little bit of it!

Now this assumption would all be realized as long as there is great demand for it, because without demand, its price will eventually fall.

Here are related discussions which I think are relevant to the OP:

Stock To Flow Model: Modeling Bitcoin's Value with Scarcity
wrote a paper about the convergence of bitcoin toward the stock-to-flow model

[Kyraishi]

Exactly mate, this is the point of BTC. The scarcity was one of the main reasons why it was seen as so popular, and a better payment option then some fiat currencies, a lot of people dislike inflation and if you are just not able to print more money, that entire factor is reduced and becomes impossible.

21 million market is perfect, this combined with the constant halving means that we will never need to worry about prices being an issue, or even running out of BTC for 30 or so years to come.

[bitmover]

21 million cap in my opinion is not about scarcity and price but instead it is more about having a clear maximum supply and a clear predefined plan for distribution of that supply.

Are you trying to say that 21 million bitcoins are a lot?

I disagree with that. There are today near 8 billion people in the world

So, if we make the math, there is 0.002625 Bitcoin for each living person.
However, world population keep growing at exponential rate. Soon it will be less than 0.002 for each

Look at this wikipedia image
https://en.m.wikipedia.org/wiki/World_population

[Darker45]

It is indeed a factor. The impression that it sends to people is that it is not unlimited and that after years and decades the total supply will remain the same. This is in great contrast to fiat which is unlimited and even created or printed out of reasons that are either hidden or beyond the comprehension of the majority of the common folks.

In addition to the limited total supply of Bitcoin is the fact that a significant chunk of it is already lost or forgotten beyond recovery, and that the mining reward is also reduced into half every four years. Scarcity is obviously playing a vital role in the rise of Bitcoin's price value.

[MURONDI]

market law is inseparable from supply and demand, the most important of all is demand, while scarcity cannot guarantee demand will increase, we don't know in the future whether bitcoin remains number one crypto, it could be people will leave bitcoin and switch to another crypto.

[coin-investor]

21 million cap in my opinion is not about scarcity and price but instead it is more about having a clear maximum supply and a clear predefined plan for distribution of that supply.

Are you trying to say that 21 million bitcoins are a lot?

I disagree with that. There are today near 8 billion people in the world

So, if we make the math, there is 0.002625 Bitcoin for each living person.
However, world population keep growing at exponential rate. Soon it will be less than 0.002 for each

Look at this wikipedia image
https://en.m.wikipedia.org/wiki/World_population

21 million is not a perfect supply for me because not all coins are accounted for there are unused coins like those on Nakamoto's wallet and those lost from carelessness and lost private keys and you are right our population is growing and many countries are now started adopting Bitcoin, but supply is indeed the leading factor, more adoption od less supply means higher price.

[ChrisPop]

Bitcoin is simply said a scarce asset with functionalities that would meet the "specifications" of a global mainstream currency. I always like to give this example to people: recent statistics show that there are over 36 million millionaires in the world which means that Bitcoin should be worth more than $1,710,000/unit just through the law of supply and demand( taking into account that each of these millionaires only want to buy 1 BTC). In this calculation aren't included the considered lost BTCs ~4M.

[OGEOS]

21 million cap in my opinion is not about scarcity and price but instead it is more about having a clear maximum supply and a clear predefined plan for distribution of that supply.

Are you trying to say that 21 million bitcoins are a lot?

I disagree with that. There are today near 8 billion people in the world

So, if we make the math, there is 0.002625 Bitcoin for each living person.
However, world population keep growing at exponential rate. Soon it will be less than 0.002 for each

Look at this wikipedia image
https://en.m.wikipedia.org/wiki/World_population

I dont think he was implying that, but great point on your end. One to three BTC is going to be life changing in a decade.

[tsaroz]

In the field of economy, bitcoin probably is the first coin that would have a limit cap. So, it would be a first time experience where the value would head while we approach the limit.
With zero generation, there could be a drastic decrease in circulation of coin. Miners would need to wait for transactions to get the fee reward while the number of transactions would go scarce. Depending on the situation, I believe bitcoin should implement something more to make the blockchain dynamic.

[franky1]

things people are missing
analogy
people think there could only be 21million fruit oranges meaning only 21million people will get to taste what a fruit tastes like and be able to own the fruit for life

however oranges can be peeled way into smaller segments and have 210 million people have a taste of orange. infact oranges can then be cut up further and 2.1trillion people can know what a orang tastes like

this dos not mean that each 'piece' a person gets multiplies by 100,000,000. but instead they get 100,000,000 smaller a piece

thus its not scarce because there are more pieces than people. everyone can have a bit. no one can say there will never be enough pieces for everyone.

its not like a physical coin that only minted 100000 coins. coz with physical coins there can and only ever be 100000 owners of a coin.

markets do not change in relation to scarcity (21m) as that 21m number has been a factor for 10 years and has never changed and yet in 2009 when only 2mill were available the price was low. and now with 18m available the price is high.. which is an obvious counter indicator to scarcity

however the 'availability' (supply/demand) of just the custodian hoards of exchanges (1.2m right now of coins on exchanges) affect the price more
aswell as the decision to buy or to mine depending on the cost to mine 1btc vs the price to buy 1btc sways people to do one or the other to a varying degree.

scarcity of 21m is not a point again for emphasis 21m has ben a fixed number all along
its population demand for it (adoption desire) and market availability(market custodial hoards 1.2m NOT the 18m circulation)

[7788bitcoin]

Scarcity is one of the leading factors of Bitcoin’s value and it is an idea that was deliberately implemented from the beginning. Many key players in the industry are already making predictions about the future value of Bitcoin, having considered the effect of the scarcity along the way. In November 2018, ex-hedge funds manager, Mike Novogratz predicted that Bitcoin will recover and return to the $20,000 highs of late 2017.

Scarcity is not the sole reason why the price is increasing, the fundamental reason for the price of bitcoin increases is because there are people intrigued by the technology and they foresee a massive adoption in bitcoin and so is the reason people are investing in bitcoin and thereby the price keeps increasing, so what i am trying to tell is that scarcity is one factor for the increase in price and there are many other factors for the rise.

Edit: franky1 explained it better than me.

[audaciousbeing]

Scarcity, as a leading factor might be right but not totally because for anything to even have value, it needs to be scarce. On the otherhand, for anything to be said to be scarce, it means its not available but for bitcoin, the moment you have your fiat or any crypto, its available for you. All over the world, there are exchange sites, and peer to peer sites where people trade in millions by the minute which means its not scarce rather its the forces of demand and supply that push the price up. Also again, is the holding nature of people who believes that holding it means that the value in relation to fiat would increase that is not the case, that would mean making it an investment asset because its like someone keeping dollars under his pillow and thinking with that, the value would increase.

[zhekinsp]

Yes if smallest unit of bitcoin is one bitcoin but that not really true since 1 bitcoin can be further divided into 100,000,000 sats so what if we convert 21,000,000 bitcoins into sats then it will be 2,100,000,000,000,000 sats which is more than enough even if everyone using bitcoin as their only currency for every payment they make so less number of bitcoin units is not the only reason for price to be hiked.

[franky1]

Yes if smallest unit of bitcoin is one bitcoin but that not really true since 1 bitcoin can be further divided into 100,000,000 sats so what if we convert 21,000,000 bitcoins into sats then it will be 2,100,000,000,000,000 sats which is more than enough even if everyone using bitcoin as their only currency for every payment they make so less number of bitcoin units is not the only reason for price to be hiked.

1. imagine there were 2100 coins(could be split) only 2100 could own it. but if 4200 want it. a bidding war would occur raising the price EG if coins were $1 each people would refuse to sell for less than double($2)


2. imagine there were 2100 coins(could be split in 2) where 4200 could own it. if 4200 want it. they can al have a piece and the bids wont be as high. instead if 2100 coins were $1 each people would refuse to sell for less than$1 a coin but could be swayed to sell a half coin for $0.60-$1 =whole coin $1.20-$2

in example one price would exceed $2. where as example 2 shows price only at extreme may reach $2

..
3. able to split into 10 pieces
ven less chance of $2 per whole coin. and more chance of ~$1.20 a whole coin

....
4. if there were 2,100,000,000,000,000 units. and someone buggd the code an 'destroyed' it down to just 2100 nits. demand would rise
5. if core devs STUPIDLY!! implemented 'millisats' (1000x unit supply(btc with 12 decimals)) demand would fall

[error08]

Scarcity is one of the leading factors of Bitcoin’s value and it is an idea that was deliberately implemented from the beginning. Many key players in the industry are already making predictions about the future value of Bitcoin, having considered the effect of the scarcity along the way. In November 2018, ex-hedge funds manager, Mike Novogratz predicted that Bitcoin will recover and return to the $20,000 highs of late 2017.

Scarcity is not the sole reason why the price is increasing, the fundamental reason for the price of bitcoin increases is because there are people intrigued by the technology and they foresee a massive adoption in bitcoin and so is the reason people are investing in bitcoin and thereby the price keeps increasing, so what i am trying to tell is that scarcity is one factor for the increase in price and there are many other factors for the rise.

Edit: franky1 explained it better than me.

Indeed, but as the title mentioned, 21 million still a factor that affects bitcoin price although it's not so significant these days.
Bitcoin surely will recover to $20,000 after the halving, but it's because the mining rewards decrease but should be able to cover the mining costs, so the real price of bitcoin measured based on mining costs. What makes the price rise to the moon is because the market trends i.e. manipulation, not the technology.

[blckhawk]

It is true mainly because limited supply with constant increase in demand would drive the prices up, but not really that it won't stop. After limit has been reached, people would still continue to buy and sell BTC in exchanges, maintaining balance in market trend. However, the real problem of Bitcoin is that nothing backs it up, and I don't think Satoshi meant it to be an asset, but rather a way of payment/transfer of funds without intermediary. There are complications on having a deflationary currency, and one of which is that people would just tend to hold their highly valuable BTC instead of spending it, making the market activity so low that no one actually uses it.

[Pearls Before Swine]

21 million cap in my opinion is not about scarcity and price but instead it is more about having a clear maximum supply and a clear predefined plan for distribution of that supply.

True.  Bitcoin isn't scarce if you consider how many decimal places a single bitcoin can be divided into.  The whole point of limiting the total number of coins was to ensure that bitcoin, a form of money, could not be inflated infinitely like fiat can be.  Satoshi no doubt saw the problem with hyperinflation situations and gov'ts printing money like they were manufacturing Monopoly games.  And that is the beauty of bitcoin.  One of the beauties anyway, because there are other attributes that make it an incredible currency.

But op, I agree that it is this 'scarcity' that is responsible for bitcoin's overall rise since its inception.  Look at a coin like doge, which has inflation built into its code.  That is probably the reason why it can't ever seem to stay much higher than 20-something sats.  There are just too many coins circulating and it's never going to get any better. 

[Tonteus]

I absolutely agree with you, as soon as the last bitcoin is mined, the price will grow many times.