In this post, we discuss scarcity and its relationship with Bitcoin. We’ll define what scarcity means to us and explore how scarcity creates value. Using examples like gold, postage stamps, diamonds, and our own life hours, we’ll illustrate these concepts. We then ask the question: are euros and dollars truly scarce? Since the answer is “no,” what does this mean for their value? And why do we trade our scarce life hours for money that can be printed endlessly?
The Basics
So, Bitcoin and scarcity—let’s talk about this for a moment. It’s a concept we hear a lot about, especially in relation to Bitcoin, but what does it really mean?
When we talk about scarcity, we often mean something with a limited number or fixed quantity. Think about it like this: if there’s a fixed amount of something, it’s considered scarce. The less there is of something, and the harder it is to create more, the more scarce it becomes.
What Makes Something Scarce?
To understand scarcity, let’s consider a few examples. Imagine diamonds. Real diamonds are considered scarce because they’re difficult to find and mine. But now, we can grow diamonds in a lab that look and act just like mined diamonds. This raises questions: Does the ease of creating lab-grown diamonds make real diamonds less valuable? If lab-grown diamonds are indistinguishable from mined ones, do mined diamonds still hold extra value?
Scarcity isn’t just about rarity; it’s also about desirability. People want diamonds, which adds to their value. If something is rare and people want it, it becomes even more special and valuable.
The Role of Time and Energy
Another key aspect of scarcity is the time and energy needed to create or obtain something. For example, creating lab-grown diamonds might be easier and require less energy than mining natural diamonds. This difference in the effort required to obtain something can affect its price and perceived value.
Think about postage stamps from the 70s. Those stamps can’t be reprinted because they belong to that specific time period. Over time, their scarcity can increase as more people want to collect them, making them more valuable. This is another way scarcity works—limited availability over time, combined with demand, increases value.
Scarcity and Money
Now, let’s relate this to money. Is the euro or the dollar really scarce? At one time, dollars were tied to gold, which made them scarce because gold itself is scarce. But since 1971, money isn’t tied to anything scarce. This makes us question why we trade our time and effort (which are truly scarce) for something that isn’t.
Few people think deeply about what their money is really worth. For instance, is a house worth more now because it’s become more valuable, or has the value of money changed? There’s often a disconnect between value and price. Ideally, prices should go down over time with increased efficiency, but that’s not what we see happening. Instead, costs keep rising, which contradicts the idea that efficiency lowers prices.
Bitcoin and True Scarcity
This brings us to Bitcoin. Bitcoin’s scarcity comes from its limited supply and the energy required to mine it. Unlike euros or dollars, Bitcoin can’t be printed at will. There will only ever be 21 million Bitcoins. This cap on the total number of Bitcoins, combined with the time and energy required to mine them, makes Bitcoin truly scarce.
Bitcoin stands out in the digital world because it has these unique scarcity properties. This design by Satoshi Nakamoto incorporates all the aspects of scarcity we’ve discussed—limited supply, the effort to create it, and desirability.
Why Scarcity Matters
Understanding the scarcity of Bitcoin can help us see why it’s considered a reliable store of value. People often trade Bitcoin to earn more euros, but a deeper understanding of scarcity might make us consider holding onto Bitcoin instead. After all, Bitcoin’s scarcity can make it a reliable way to store the value of our limited and valuable time.
So next time you think about Bitcoin, remember its unique scarcity properties. This is what sets it apart from traditional money and makes it a valuable asset in today’s world. In times of turmoil in Bitcoin markets, and when prices drop as a result of increased volatility, do not despair, and remember; Bitcoin will only ever have a supply of (just) 21 million, and you will want to be holding some of that.
