Why is Bitcoin's Supply Capped?
Bitcoin's supply is capped at 21 million coins, a decision rooted in its founding principles as a decentralized digital currency. This cap creates scarcity, which is a crucial component of its value. The implementation of a finite supply helps to mimic precious metals like gold, which also have limited availability. Scarcity is designed to protect the purchasing power of Bitcoin over time, distinguishing it from fiat currencies that can be printed in unlimited quantities.
The capped supply is enforced through Bitcoin's protocol, specifically the mining process, where miners are rewarded with newly minted coins. This reward halves approximately every four years in an event known as "halving." As a result, the total issuance of new Bitcoins decreases over time, ensuring that the 21 million cap is hard-coded into the system. This deliberate design choice is a key advantage of Bitcoin over many altcoins, many of which do not have a fixed supply limit.
Moreover, having a capped supply adds an element of predictability to Bitcoin's economy. It encourages long-term holding behavior, often referred to as "HODLing," as people anticipate future scarcity leading to price appreciation. This intentional design aligns with Bitcoin’s vision as a hedge against inflation and a store of value, reinforcing its position as the predominant cryptocurrency in the market.