A Controlled Currency Supply Makes A Difference
Today, the idea of a controlled currency supply in regard to central banks makes little sense. Who controls the currency supply? The chairman of the federal reserve, Ben Bernanke? The bureaucrats and politicians that ask for more money? It can be conceded that the government in general does control the currency but the demands placed upon central banks make an inherently out of control currency. The network of demands placed on central banks make fiat currency government-controlled, but the spenders make fiat currency out of control in another respect. Bitcoin completely changes the picture as we are now to see.
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Bitcoin truly has a controlled currency supply. Every Bitcoin starts at a point of origination, that point being the coinbase reward. The coinbase reward is given out to miners that contribute to solving a block, and the rate at which blocks are solved is controlled. The network alters the difficulty of solving a block to be around one block every ten minutes, six per hour, about 2016 every two weeks and 210,000 every four years. Since solving a block determines the rate at which Bitcoin are released via coinbase rewards, and since blocks are controlled via the network by altering difficulty, the rate at which Bitcoins are released is controlled.
If you compare this to fiat currency the effect is interesting. Central banks are subject to the leadership of the moment, the congress of the moment and the political aims of the moment. The populace in general has little knowledge of what the next move will be and expectations are short-term, not long-term. Bitcoin has the rate of currency supply growth right out in the open for anyone to see, and a track record of coming close to these expectations. The effect? The expectation of currency users completely alters.
Let us say that the quantity theory of money makes sense; that is, the amount of currency in circulation impacts the value of that currency. Let us further say that more money, which is less scarcity, causes inflation and a loss of purchasing power. Also, a decrease in the amount of currency will have the opposite effect, an increase in purchasing power. Apply this, based on expectations, to both currencies. Also, apply this concept to, say, long-term savings. When you look towards the future of government controlled currency you see nothing but large growths at random times. It gets easy to conclude, beyond all the mystery, that the dollar bill you save today will be worth less tomorrow than it is today. The quantity of currency will increase and with current situations hyper-inflation is on some minds. You could lose all the value you save and your dollars might not be worth the paper it’s printed on. What about Bitcoin?
Bitcoin, and its truly controlled currency supply, will maintain a gradual increase. This increase is gradual enough that demand will outpace supply consistently and Bitcoin will deflate. This gives Bitcoin one of the qualities that make it extremely distinct, and interesting. Bitcoin is a deflationary currency, meaning the Bitcoin you save today will likely be worth more tomorrow. Savings become investment. The controlled currency supply gives Bitcoin a deflationary nature and a satisfactory future expectation.
You have two options. Option one is you could work, get your check and put your fiat currency into a bank to save for the future. Because you’re rewarded interest at the bank won’t outpace inflation, today’s dollar will be worth less next year over this year. The central bank could print more, change interest rates or change the legal ratio of commercial bank’s fraction-reserve. Or, you could use your fiat currency to purchase Bitcoin. If demand continues to increase, this year’s Bitcoin will be worth more next year. No government can increase the amount of the coinbase reward or alter the rate of currency release. Based on the alternatives presented, you decide.