The concept of virtualized assets is not new, and bitcoin is a conventional scarcer asset that is subjected to a gigantic market value and user base. Bitcoin was invented by a Japanese inventor named Satoshi Nakamoto, and there are clues about his real-life existence.
Bitcoin was the first-ever cryptographic cash to be subjected to such innovative aspects as decentralization, limited supply, bitcoin mining, and proof of work.
You might be familiar that bitcoin is subjected to limited supply, and there can only be 21 million bitcoins in the marketplace. Therefore, after the bitcoin limit is reached, miners cannot possibly extract bitcoin units from the bitcoin algorithm.
The store value of bitcoin has led to the mining of almost 90% of bitcoin units, which is one of the prominent reasons for bitcoin scarcity. The virtuality and decentralization of bitcoin define some of the prominent risks associated with it.
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Rate of Inflation over some time!
The block reward halving of bitcoin has correspondingly affected the inflation rate of bitcoin as the inflation rate of bitcoin at the instance is minimal. For example, the inflation of bitcoin per annum in 2010 was 209%, in 2011 rate of inflation of bitcoin was 59%.
As the number of bitcoin is inclining, the rate of inflation is constantly decreasing. In 2015 when there were 15,029,525 bitcoin units, inflation per annum was merely 9.9%.
The estimated inflation rate of bitcoin dips to 1.77%, and by the end of 2020, it might reach 1.5%. Inflation is referred to as a change in money supply, but it is underlined as the inclination of goods price and the decline of money value.
Bitcoin’s Finite Supply
As established ahead, the supply of bitcoin is limited and is restricted to up to 21 million bitcoin units merely.
Conferring the limited supply concept of bitcoin, there is ample other digitalized coinage subjected to similar phenomena, such as lite coin. The instance bitcoin's inventor, Satoshi Nakamoto, issued the finite supply of bitcoin, value of these bitcoin units was just zero.
A finite supply of bitcoin was meant to save bitcoin from inflation. To render an ultra-hedge from inflation, an event named bitcoin halving was correspondingly introduced in the bitcoin ecosystem.
Bitcoin halving declines the reward of bitcoin mining progression by half subsequent to every four years. Let's find out how the limited supply of bitcoin is influencing its value.
Effect of limited supply on bitcoin’s value
The effects of bitcoin's limited supply on its value are still under supervision, and several economists are putting their best foot forward in order to acknowledge the effects of bitcoin's limited supply on its price. Conferring bitcoin halving events, you can predict the effect of limited supply on its value.
2012- You might know that with the fact that on the 28th of November 2012, the first-ever bitcoin halving was executed. Block reward of mining prior to block reward halving was 50 units, and the subsequent to block reward halving of bitcoin ecosystem it declined the reward to merely 25 bitcoin units.
It might have affected the profitability of bitcoin mining to an extent at the very first instance, but bitcoin value later balanced the profitability of bitcoin mining as the value of bitcoin reached almost $200 after the first-ever bitcoin halving.
2016- In 2016, the second block reward halving took place. After the second block reward halving, the block reward of mining was decreased by 12.5 bitcoin units. Subsequent to the second block reward halving, bitcoin value reached $10000 by the end of 2017.
2020- The utmost recent block reward halving occurred in 2020, and the block reward of mining at the instance is just 6.25 bitcoin. After this block reward halving event, bitcoin touched a milestone of almost $650000, which is gigantic.
Is The Limited Supply Of Bitcoin Expandable?
Satoshi Nakamoto, the inventor of bitcoin, was not familiar with the fact that bitcoin will attain a gigantic store value in the future, and that is why he has limited the supply of bitcoin to 21 million units.
However, bitcoin is built in such a way that the inventor of bitcoin can possibly change the hard limit of bitcoin.
In order to embrace the hard limit of bitcoin, the majority of the bitcoin holder have to vote for inclining the hard limit. However, if the limit of bitcoin expands, it might affect the value of bitcoin to an extent, and long-term investors will not probably vote for the increment of bitcoin hard limit.
This is how the limited supply of bitcoin is deriving of bitcoin value.