Where exactly is the scarcity?

In discussions on the intrinsic value of BTC, one often reads the claim that BTC is scarce because the maximum amount of BTC that can ever exist is 21 million BTC. However, since the "atom" is the Satoshi, rather than 1 BTC, that maximum amount is then equivalent to 2.1 peta-Satoshi, i.e., 2,100,000,000,000,000 Satoshi. Where exactly is the scarcity?

Some compare BTC to gold. The amount of gold ever mined may be roughly 200 kilotons. That is roughly 1 giga-mole, i.e., roughly 60,000,000 yotta-atoms of gold. Not all that scarce! However, it is impractical — if not physically impossible — to trade amounts of gold smaller than, say, 1 gram.

However, BTC does not have the physical limitations of gold. One cannot trade 1 atom of gold, but one can trade 1 Satoshi. Thus, where is BTC's alleged scarcity coming from?

As a total novice, the scarcity I see is in the rates at which existing BTC can be traded and at which new BTC can be generated. But, what exactly does that have to do with the number 21,000,000?

economics

Rodrigo de Azevedo

Posted 2018-05-17T14:48:59.040

Reputation: 141

Answers

In discussions on the intrinsic value of BTC, when people write about scarcity I think they just mean that the supply is capped, that the difficulty of finding new bitcoins is increasing.

RedGrittyBrick

Posted 2018-05-17T14:48:59.040

Reputation: 4 815

You are correct that because 1 BTC = 100,000,000 satoshi there will be plenty of units for everyone. But, each of those satoshi units may eventually by as valuable as a dollar today. Then, how much would 1 BTC be worth ? Answer: 100 million dollars. Even if a satoshi only reaches the value of 1¢ ( $0.01 USD ) then still 1 BTC = 1 million dolars.

With the total supply (of either bitcoins or satoshis) limited to a fixed number (either 21 million bitcoins or 2.1 peta satoshis) their adoption and demand can only mean that their value goes up.

Scarcity is a relative concept. The world population today is roughly 7.6 Giga Persons. For illustrative purposes consider: 21,000,000 bitcoins / 7,600,000,000 persons = 0.00276315 bitcoins per person, or 276,315 satoshis per person. But when/if the world population reaches 15 GigaPersons, then it's only 140,000 satoshis per person, (in the admittedly unrealistic case of an even distribution). This is relatively scarcer.

The population of the world is going up continually, and if (as a human species ) we transition to a more sustainable growth model (less consumption and more efficient use of natural resources) conceivably the world population could sustainably double or triple. But Bitcoin, according to the law written into the source code, and sustained by the worldwide P2P network, will never exceed that 21 million number.

dbkeys

Posted 2018-05-17T14:48:59.040

Reputation: 536

I had thought of the 1 Satoshi = 0.01 USD scenario, which implies that all 21 million BTC would be worth 21 trillion USD, approximately the GDP of the United States. If the price of BTC increased monotonically, then people would hoard. The incentive would be to mine and hold. There is also plenty of gold at Fort Knox, but gold is still viewed as scarce, probably because central banks like to maximize their gold reserves. – Rodrigo de Azevedo – 2018-05-17T18:27:29.687

Increasing adoption of BTC matters more than the growth of the world population. Right now very few people own any bitcoin. A common example given is that there aren't enough bitcoins for every millionaire on the planet to be able to buy just one whole coin. – Abdussamad – 2018-05-17T20:16:28.857

Units are arbitrary, as your illustrated with the gold example. Scarcity is not about how much there is of something. It's about how much there won't be of something.

Let me paint another example. Wood - there is a lot of wood out there, but in the end, you can count it, and it's a number, say 10^15 cubic meters; one cubic meter per satoshi. Yet, we wouldn't say wood is scarce, while satoshis are. Why? Anyone can create more wood. An individual can plant trees. Companies can cultivate fast growing trees. Governments can create new land only used for wood creation.

With bitcoin, no one can do that. No individual can create their own BTC*. No company can create Bitcoin for themselves. And no government has the power to influence how many there are**.

*You can mine, but that 'creates' your own at the expense of someone else not mining it

**Notably, governments can create USD/EUR/.. to their liking, but not BTC

Paul

Posted 2018-05-17T14:48:59.040

Reputation: 181