The Design of Bitcoin's Total Supply: Ingenious or Flaw?

Bitcoin is set at a total supply of 21 million coins, a design that has sparked considerable controversy. Some believe this is an advantage of Bitcoin, as it can prevent inflation; others argue that it is a fatal flaw that could lead to deflation. So, is this supply cap ultimately a weakness or strength of Bitcoin?

In fact, the actual number of Bitcoin is 21 million, not 21 million units. In the original code of Bitcoin, the founder limited the total supply to 21 million coins, and the difficulty doubles every time half is mined. It is estimated that the last Bitcoin will be mined around the year 2140. This design can be said to be very forward-looking.

However, some people criticize Bitcoin based on the total supply limit of 21 million. They argue that considering the global GDP reached 74 trillion dollars in 2017 and the M2 money supply of the dollar approached 14 trillion, relying solely on 21 million Bitcoins as a mainstream currency could lead to severe deflation.

However, this perspective overlooks a key point: Bitcoin can be infinitely subdivided. The smallest unit of Bitcoin, "Satoshi", is only one hundred millionth of a Bitcoin. In other words, the actual magnitude of Bitcoin is not 21 million, but 21 trillion. Assuming 1 Satoshi equals 1 dollar, then the total issuance of Bitcoin could reach 21 trillion dollars, which is enough to meet the trading needs of humanity.

Even if humanity develops to a circulation currency of 2100 trillion in the future, it will still not be able to meet normal trading needs, and we need not worry about being trapped in a dilemma due to insufficient Bitcoin. Just as we created Bitcoin today, we can similarly develop other forms of currency in the future.

In fact, Bitcoin is just one type of digital currency. Currently, there are thousands of cryptocurrencies in the market, including Litecoin, Ethereum, and EOS. This is similar to ancient China, where gold was used as currency, but later replaced by silver, copper, and even shells due to a shortage of gold. Humanity always finds solutions, and the idea that the scarcity of digital currencies could lead to deflation is somewhat shortsighted.

Some may question, since fiat currency is criticized for its unlimited issuance, what difference does it make to support such a large quantity of Bitcoin compared to fiat currency? In response, we can answer from two aspects:

First of all, the issuance of digital currency is the result of the intrinsic operation of the market, while the issuance of fiat currency is not. Miners incur costs to issue digital currency, they increase liquidity and create value, which is essentially no different from producing bread or providing haircut services.

Secondly, Bitcoin has a supply limit, while fiat currency can be issued infinitely. The purpose of setting a limit of 21 million coins is to create expectations of scarcity. Just as gold and art appreciate due to their limited nature, Bitcoin's limited supply preserves its value. In contrast, fiat currency continues to depreciate due to the absence of a limit.

The limited supply of Bitcoin, combined with its ability to be infinitely subdivided, makes it an almost perfect currency mechanism. When Bitcoin appreciates, miners can mine more or create finer subdivisions. This flexibility allows Bitcoin to adapt to different economic environments.

Humanity has been exploring the ideal monetary system. In answering questions such as how much currency society needs, who should receive new currency first, and who has the right to produce currency, Bitcoin seems to provide the best answers.