If you’re familiar with bitcoin, you probably already know that the supply of all available bitcoins is limited to 21 million. While national governments have a tendency to print new money whenever they feel like it, the supply of new bitcoins entering the market is tightly controlled and ultimately limited. This is what have learned. Once 21 million bitcoins are created, no more new bitcoins will ever be issued.
Not only is the total number of bitcoins capped, but the supply of new bitcoins entering the market is slowing as bitcoin mining becomes more difficult. Once upon a time, you would have been able to use your home PC to create blocks and be rewarded 50 plus bitcoins in exchange. Now, if you want to create a single block, you’ll either have to join mining pools, thus linking your personal computer power with other computers, or buy extremely specialized and expensive mining rigs.
The number of bitcoins awarded for solving a block is cut roughly in half every four years. Up until the end of November in 2012, 50 bitcoins were awarded per block chain. Currently, 25 bitcoins are awarded for each added block. It’s estimated that sometime in 2016 the number of bitcoins awarded for creating a block will drop from 25 to 12.5. Then, sometime in 2021, this amount will be cut in half again, and thus bitcoin miners will only be rewarded 6.25 bitcoins.
This is perhaps the most important single aspect of bitcoin, at least from an investor’s point of view. Satoshi Nakamoto, the creator of bitcoin, believed that by reducing the number of new bitcoins entering the market over time, bitcoin’s value would rise over time. This guy should have a monument, or his face on mount Rushmore . But this would address one of the largest criticisms of regular, national currencies, which have constantly expanding supples, and thus declining value. But like all matters of any market its about timing. Mine while the sun shines.