As you know, the price of a currency is greatly influenced by the number of units of the cryptocurrency or the supply.
This theory is based on the principle of supply and demand, which applies to all assets such as digital currency or paper money, etc.
In the world of cryptocurrencies, coins are either unlimited, like Doge, or limited, like Bitcoin.
In this article, we examine the effect of the number of units and supply on the final price of cryptocurrencies.
Is limiting the supply of a cryptocurrency like Bitcoin useful or harmful?
From the beginning of Bitcoin’s boom until now, this debate has always been one of the most challenging debates, whether the end of Bitcoin is good or bad?
Cryptocurrency companies have different policies. For example, we all know that the total number of bitcoins in the world is a fixed figure.
This number is mentioned as 21 million in the documents published by Satoshi Nakamoto.
But until 2018, it was announced that the number of bitcoins mined so far is about 80% of the total bitcoins that can be mined in the world.
As the number of bitcoins that can be mined decreases, the process of mining bitcoins becomes more and more difficult.
Until the Bitcoin mining actually reaches zero. Analysts predict that the day will be 2140 when Bitcoin mining will end.
So, practically, with the limitation of the number of bitcoins, the value of this cryptocurrency increases because less supply means more demand and more demand means higher price.
But fans of cryptocurrencies believe that the limitation of Bitcoin can be a unique factor in reducing inflation!
As you know, paper money is currently printed by the central bank. Governments can print more money with different systems and cause more inflation.
Inflation means that the value of the current currency is reduced and it causes the economic structure of the country to be damaged.
However, the number of limited supply has opponents who say that limited cryptocurrencies cause speculation and hinder people’s access and spending.
Bitcoin has negative inflation and is it bad to be anti-inflationary?
What effect does the supply and number of units have on the price of digital currencies?
It cannot be said that negative inflation will be bad, but it will help digital currencies to survive to be valuable.
Negative inflation means a decrease in the amount you pay for the goods and services you intend to buy. Negative inflation is the opposite of inflation. In a traditional economy, negative inflation is considered a problematic feature, in the field of digital currencies, it is not so bad.
Inflation is a problem because after a decade with ten million tomans, your purchasing power decreases and you buy something much less valuable. With a cursory look at the inflation index in the United States, where inflation is low, it can be seen that one dollar in 1913 was worth $25.43 today.
Inflated markets cause high levels of debt; In this situation, economies are faced with an amount that they cannot afford. This issue, on the other hand, can cause excessive conditions. For example, in Zimbabwe, the inflation rate rose from 59 percent in 2000 to an astronomical 80,000,000,000 percent in 2008.
Venezuela, a country experiencing unrest despite political crises, has become one of the biggest markets in the field of digital currencies due to this “super inflation”. As far as one of the Venezuelan businessmen says in a conversation with Reuters:
Although the price of Bitcoin is unstable, it is still safer than our national currencies.
Eh, the value of their payments goes up.
Click to learn about ways to earn money with digital currency!
4- Disadvantages of negative inflation
As inflation becomes more negative, the situation becomes worse. As people’s desire to spend money decreases, the demand decreases, and with the decrease in purchases and services, the probability of salary decreases increases, and the productive economy declines, eventually causing unemployment and bankruptcy of companies.
This situation is detrimental to both parties, as businesses keep reducing their prices to attract customers, but people are reluctant to spend their money and wait for further price reductions. In the end, there is a possibility that both parties will not get what they want.
According to Halsmann of the Austrian School of Economics, as long as the foundation of a currency or an economy based on debt is not done to control falling prices, price stagnation will be sustained. In this case, digital currencies reach a dead end. The remedy for this is buying with digital currencies and buying digital currencies with common currencies. That is, if digital currencies are used in small purchases such as coffee, the demand for them will increase. Of course, accepting and using digital currencies in payments requires special planning.
5- The end of coin minting!
First of all, I must say that this will not happen until we are 120 years old, there is no need to worry about this!
Running out of bitcoins will only affect miners. Miners receive a reward for mining each block, but little by little it becomes harder to mine them until there are no bitcoins left to mine.
Satoshi Nakamoto thought there too, after mining the last block, miners’ wages will change from the block mining reward to the transaction fee. This means that users will have to pay more fees to get their request done sooner.
Although the number of bitcoins remains constant and its price falls, divisibility will be a vital factor in keeping the supply level strong. To meet the needs of users for small purchases, Nakumoto has put eight decimal places for bitcoin.
Due to the fact that Ethereum has eighteen decimal places, it can be traded with any other digital currency, this is very important for a digital currency, and it will become even more important in the future.
About three years ago in 2017, 3.8 million bitcoins were lost!
This means 18% of all bitcoins! Losing, stealing, and disappearing are the possibilities of this event, and this figure will surely increase in the future.
Is limiting the supply of a cryptocurrency like Bitcoin useful or harmful?
By limiting the amount of supply and the number of cryptocurrencies such as Bitcoin, the value of these cryptocurrencies increases because less supply leads to more demand and more demand leads to a higher price.
No, in countries that are suffering from economic crises and the rate of inflation of their national currency is high, using Bitcoin, which is anti-inflationary due to its limited supply, is more reasonable than using the national currency. To the extent that even the businessmen of some of these countries use Bitcoin for business.
How is consumer behavior affected by assets with negative inflation and fixed supply rates?
The use of anti-inflationary currencies does not make their owners not to spend them, but it makes them spend anti-inflationary currencies only for necessary things because they know that by keeping these assets, they can get their needs cheaper in the future.
The amount of people’s willingness to buy decreases, because people wait until they can buy the product they want at a lower price, on the other hand, businesses have to continuously reduce their prices to satisfy customers. As this process continues, there is a possibility that none of the parties will get what they want.
Bitcoin depletion will only affect miners. Miners’ wages will change from rewards for mining each block to transaction fees. In this way, if someone wants to make his request earlier, he has to pay more fees.