Bitcoin today is very valuable. One Bitcoin is worth approximately $60,000 thanks to a long bull cycle that started in 2020. As Bitcoin turned out to be a success story in the world of crypto, a lot of new users and investors are wondering how it achieved this milestone? One of the reasons is digital scarcity, and here we provide an overview of the limited supply of BTC and what kind of impact it had on Bitcoin.
What is Digital Scarcity?
When an asset or commodity is scarce, it has a limited supply that isn’t easy to access or copy. Some of the examples of assets that are limited are oil, gold, precious stones. When it comes to Bitcoin, thanks to the design of blockchain technology, it is impossible to copy BTC or to generate more than the previously capped supply of 21 million tokens.
There are protocols that further regulate the distribution of BTC. More specifically, the miners are verifying blocks of transactions on the network and ensuring their safety, while with each block of transaction that is being approved, new BTC enters the blockchain network.
One of the protocols is Bitcoin halving, which ensures the rate at which new BTC is being produced, and regardless of the competition on the network, stays stable. Actually, every four years or after 210,000 blocks are added to the network, the block reward, which is compensation for the miners, is being cut in half.
In addition, the goal of having a stable influx of BTC is further regulated by the protocol, which impacts the difficulty of mining, and it actually increases the level of difficulty of mining every two weeks or after 2,016 blocks are added to the network based on the competition in the blockchain network.
Overall, this means that Bitcoin is a deflationary cryptocurrency due to its completely restricted supply and the protocols which regulate the number of Bitcoin tokens that are being issued on the network.
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When it comes to the safe-haven status of Bitcoin, it has reached this point not only because it has a restricted number of BTC but also because investors are treating Bitcoin as a safe- haven asset, especially as this is a decentralized virtual currency which means that different trends and political or financial crisis don’t a have a direct impact on its growth of value. This isn’t the case with fiat currencies, for instance.
Moreover, the greatest bull cycle that Bitcoin has had was during 2020 and 2021, which marks a time of uncertainty in general for the global economy, but the value of Bitcoin was on a steady rise.
Due to the restricted supply and ongoing bull cycles, the value of Bitcoin continues to rise, especially because it’s becoming an increasingly rare asset with approximately 2 million BTC left to be issued on the network.
Also, it’s it should be noted that Bitcoin has experienced institutional support that even more elevated its status as a hedge against inflation, especially when popular brands such as Tesla, Etsy, At&T, Microsoft, and others are accepting BTC payments.
Plus, accredited institutional investors part of the Grayscale Bitcoin Trust Fund, Osprey Bitcoin Trust Fund, are making huge investments in Bitcoin, and this is also one of the factors that impacted the perception of Bitcoin as a safe-haven asset.