I am sorry. There is no REAL cap on the supply of Bitcoin. I understand this is blasphemy! Faith in this cap is unshakeable. It is held with an almost religious zeal.
I expect to be tarred and feathered as a blasphemer, but I feel duty-bound to trumpet this fact. I do not care what anyone says, truth and honesty still matter, so I am duty-bound to speak out here.
Do not get me wrong, I really like the cryptocurrency idea. I do expect it to be the future of day-to-day commerce...someday. I believe in the use case for cryptocurrency.
It is why I believe Dogecoin has a real value proposition. It is this transparency about the lack of a cap. The lack of a cap is actually a positive in my opinion.
The Dogecoin protocol allows for a 5% adoption rate without causing inflation in the currency. I obviously like Dogecoin, but this essay is about Bitcoin.
Given the amount of hype around Bitcoin, one would think this MYTH of a 21 million coin cap would get more attention. Bitcoin's supply is capped at 21 million coins we are told.
Unlike a fiat currency Bitcoin allegedly has a capped supply. This CAP is portrayed as if it is a law of the universe like gravity. This cap makes Bitcoin digital gold, we are told. There is a limited supply of Bitcoin like the precious metal, gold.
Let us look take moment and look at gold. Why has gold held this place in the human economic world for millennia? Gold truly has a limited supply. There is only so much gold in the world. Gold has been a traditional store of value in human economies literally for thousands of years.
Gold is hard to get out of the ground. Though it does not degrade or tarnish, the effort to get it out of the ground has limited its supply. Even though humans have been digging it out of the ground as fast as we can for millennia, there is a limited amount.
It is this physical limitation that makes gold's supply cap REAL. It is estimated there are about two hundred thousand tons of gold above the ground and under human control.
This situation appears to be about the same going into the future. Unless Elon Musk finds an asteroid with a gold core or starts mining the stuff on the moon, the gold supply appears to be pretty static.
Gold is just really really hard to get, simple, period. However, despite the physical limitations of getting gold out of the Earth, the gold supply is NOT CAPPED! Yep, the supply of gold is not capped.
Every single year persistent and hard-working humans scratch out another few thousand tons. That means the gold supply grows by 1-2% every year.
That makes Dogecoin with no cap but less than 5% coin growth every year a bit more like gold than Bitcoin is. This is the reality, even something like gold has no physical cap. This is as close as "money politics" comes to honest and open commerce. There is real transparency about the GROWTH of supply.
Gold forces some transparency because it is obviously hard to get. Are supplies hidden? Yes. Is the price of gold manipulated by central banks? Probably. The aforementioned should help you understand the transparency a physical limitation helps bring to the opaque world of human finance.
There is very little transparency in human finance. It just makes no sense. Wealth is a precious thing. Historically having a lot of wealth made one a target, so strong militaries and secrecy became the default. This is all just simple common sense, but it deserves reiteration here.
Humans cannot be trusted. Humans are rarely honest especially when it comes to money. Gold's store of value is based upon a physical limitation that everyone agrees is real. It is hard to get gold out of the ground.
So back to Bitcoin's 21 million coin cap. This cap is approaching. The rewards for mining have been reduced significantly as far as the number of coins per "solve".
However, because the price of Bitcoin has been increasing the reduced coin count has not seriously changed miner behavior. Cryptocurrency ecosystems are kept alive by mining activities.
These activities in general involve the miners maintaining nodes on the network and processing transactions for the cryptocurrency rewards of solving complex equations meant to verify network viability.
No one actually knows what will happen when the cap is hit and no more Bitcoin will be rewarded for mining. The idea is that the network will be self-sustaining by this point.
Transaction fees are expected to compensate node operators since mining will no longer yield coins.
However, it is also possible miners may flee the Bitcoin network for more lucrative currencies. Remember Bitcoin miners are humans. They do human-like things like chase returns.
This would harm the network and make the dreaded 51% attack more possible. It is also possible the Bitcoin protocol will be changed to allow for more than 21 million coins.
This is possible. Code can be changed. One wonders what might happen to BTC value was this to happen suddenly and without warning.
Insiders could make a killing shorting the coin if they knew ahead of time. Remember changing code is a lot easier than digging stuff out of the ground.
What? You did not realize the Bitcoin code could just be changed. You thought all this stuff Satoshi put together was immutable and unchangeable. The truth is no one actually knows what will happen as the cap approaches.
Unless the price of Bitcoin has grown significantly, it will not be profitable to be a miner and receive say only two Bitcoin for the efforts. This is a simple fact and no one can predict what the future price of Bitcoin will be.
If there is a profit squeeze, the miners are not likely to object to removing the cap. When the cap approaches, are transaction fees sufficient at this point to support a truly robust decentralized network?
Nobody knows the answer to this. For some reason, Bitcoin evangelists never talk about the fact the source code can be changed or that the miners wield enormous power over what changes make it into the system.
There is no question that a supply squeeze can cause a real store of wealth to increase. Gold clearly has a limited supply though demand has not always been as great as expected.
Perhaps a better example is how giant corporations with strong earnings have inflated stock prices now. The Gamestop short squeeze showed how powerful and painful a supply-demand squeeze can be.
What do you think humans will do when the Bitcoin supply becomes "artificially short"? Do you think that because there is a "code cap" on the supply of Bitcoin that it will be honored FOREVER by humans?
Could there be so much invested in the network at a point down the line that it will make sense to remove the cap to make sure the miners stay on board? Who can say?
Nobody really knows what humans are going to do next. The humans are definitely "out of the book" at this point in the 21st century.
What is next? Nobody knows, but I think we all know the PROMISE of some humans not to change code is just that a HUMAN PROMISE, not a PHYSICAL cap.
Disclaimer: The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.
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