Letter #243: FUDbusters - The True Value Of Bitcoin's Supply Cap
Read now to learn what impact Bitcoin's supply cap actually has on its value.
Dear Readers,
A number of misconceptions about Bitcoin pervade the space at any given time. For example, the supposed negative environmental impact of Bitcoin mining is perhaps one of the most widespread and detrimental.
Another common misconception, that gets talked about even more every four years or so when the halving comes around, is that Bitcoin’s supply cap is what makes Bitcoin valuable. That's an easy conclusion to draw if you spend enough time in the Bitcoin space. After all, Bitcoin’s supply cap is one of its most important features.
However, Bitcoiners’ sometimes singular focus on the supply cap allows an entry point critics can take advantage of to challenge the credibility of Bitcoiners and confuse outsiders as to Bitcoin's true nature and value. If Bitcoin’s value comes from its supply cap, they say, then why aren't currencies with even lower supply caps more valuable than Bitcoin? If you can get someone to focus on Bitcoin’s supply cap, and nothing else, they'll very quickly fall for the logical fallacy being peddled by ill- intentioned critics.
The True Value Of Bitcoin's Supply Cap
Bitcoin has value for any number of reasons. Here are just a few:
Bitcoin is the first and only decentralized, in every sense of the word, currency. No government, corporation, or group can truly interfere with our collective ability to use the Bitcoin network, no matter how hard they try.
Bitcoin is global, and nearly instantaneously so. Banks, credit card companies, and the like pretend that transfers on their networks take seconds or less, even though the reality is that they spend days or weeks transferring the money back and forth amongst themselves. Meanwhile, layer-2 solutions on Bitcoin, like the Lightning Network, offer instantaneous transactions that get settled in the layer-1 Bitcoin blockchain every ~10 minutes.
Security outside of the Bitcoin blockchain is poorly conceived, as evidenced by neverending breaches: other blockchains get hacked, financial institutions get robbed, and corporations at large get phished for increasingly alarming amounts of customer data. By comparison, over its fifteen year life span, Bitcoin has never been truly hacked and has hardly even suffered any downtime – your money and financial data is actually secure when you use Bitcoin.
There are dozens of other features that generate value for Bitcoin, but the supply cap isn't one of them. However, the supply cap does have an indelible impact on Bitcoin's value: because Bitcoin are worth owning and using, and because the supply cap limits how many Bitcoin are available, people are willing to pay more for the privilege of having Bitcoin.
With that in mind, it's easy to see why many people conflate price and value. Regardless, it's up to us to clear up confusion as best we can, and help people focus on the true benefits that Bitcoin can have in their lives.
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This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.