Bitcoin’s deflationary nature is rarely questioned. Instead, it is often considered as part of its origin story. We’re referring to bitcoin’s limitation to 21 million BTC – a message that is easy to convey and was tempting from the outset. With regard to the economic considerations, however, the asymptotic crawling to a fixed number might not be the wisest choice.
In cryptocurrencies, the expenditure of electricity towards the security of the network by the miners has to be reimbursed by some economic participant. There are two extremes. The cost is borne by the users of the currencies in each transaction through fees, or by the hodlers of the currency through inflation.
Crypto Finance’s Head of Research, Dr Lewin Boehnke, discusses the economic rationale and consequences of that decision for bitcoin, and he presents original arguments and considerations around this decision from a technological rather than an economic standpoint. This knowledge session, recorded just over a year ago, remains relevant today, as bitcoin price moves can be considered in light of this aspect.