A deep dive into Bitcoin's scarcity: Less than 0.6 BTC available per user

28 Mar, 2019
by Will Heasman
News
A deep dive into Bitcoin's scarcity: Less than 0.6 BTC available per user

Scarcity: The state of being in short supply. In regards to economics this definition takes on a slightly different meaning, a finite resource of which the demand outweighs the supply; but how does scarcity derive value? and what exactly makes Bitcoin scarce? Let's do a quick a deep dive into Bitcoin's scarcity... 

21 million. That is the amount of Bitcoin that ever has been, or will be in existence; This coupled, with the fact that some of this fixed supply is actually lost forever, and we get a highly valuable asset, or at least we should do…

But why?

Scarcity is a factor of both economics and social psychology, dubbed, the scarcity principle; putting its hugely inventive name aside, this economic and psychological factor is essentially the same as supply and demand, a theory in which a limited supply of an asset, combined with high demand for it, results in an increase of the perceived worth of the asset, in some cases, even regardless of actual utility.

Over the years this principle has been utilized for the benefit of many brands, including Starbucks and, perhaps the best example of all, De Beers, the famous Diamond manufacturer. 

Read more: De Beers' diamond traceability project gets first retail partner

Now Diamonds are neither particularly useful, or rare, in fact, they’re one of the more common gemstones in the world, but their perceived worth and rarity has always driven their value; however, this wasn’t always the case.

In the 1800s the precious stone was a fairly rare find until one day in Kimberly, South Africa a few plucky miners stumbled across a massive gold (STRIKE) diamond mine. Jackpot.

De Beers, clearly knowing the scarcity principle off by heart, didn’t take too kindly to the imminent saturation of diamonds on the market, and quickly bought up the mine, restricting control over the supply, and thus creating the illusion of scarcity. It worked.

(Dimond price per carat since 1960) 

Even Starbucks has taken a leaf out of the book of scarcity, creating a one-off, limited edition “Unicorn Frappuccino,” an ice-cream based, fruit and candied drink which sold out on the first day of production.

Read more: Starbucks and Bitcoin: what are the facts?

(Admit it, you kind of want one…)

Low supply + high demand = value

So, scarcity sells, but what does that mean for Bitcoin?

As we know, there will only ever be <21 million BTC available, ever.

However, Bitcoin may be even more scarce than first thought. This is according to a report from Chainalysis, who related that as much as 35% of the current circulating supply of 17.6 million BTC (approximating 6.2 million BTC are missing) lost or unmined.

Read more: New data reveals that 36% of circulating BTC supply is lost

With this in mind, it's safe to assume that once all fully mined the total supply of BTC will actually be much lower than 21 million. Making BTC even more scarce than previously believed.

Bitcoin divided

The reality of the finite nature of digital gold really kicks in when allocating the total supply to certain groups. The first group is perhaps the most obvious, (and close to home). Crypto enthusiasts.

According to a study released in late 2018 from the Centre for Alternative Finance at the University of Cambridge, there are approximately 35 active ID verified cryptocurrency users.

Read more: More than 139 million cryptocurrency accounts in 2018, says Cambridge study

Now, regardless of lost BTC, let's say for argument's sake the total amount of available Bitcoin was 21 million; there still wouldn’t even be enough for every crypto enthusiast to hold 1 BTC. In fact, if every ID verified crypto aficionados wanted to hold even a fragment of BTC there would only be 0.6 BTC available per HODLer…

Keeping this idea going. It's impossible for all the citizens in three of the most populated cities in the world to hold one whole BTC each, this includes: 

Tokyo: 38M people 

Delhi: 25M people 

Shanghai: 23M people

Furthermore, and scaling up a little,  let's assume bitcoin manages to hit critical mass, and everyone on the planet tries to grab a piece of the action. There would only be 0.003 BTC for each person…

Are you getting the picture yet?

All that glitters... 

The only other asset that is comparable to BTC in terms of both scarcity and, in some respects, utility, is gold…

There is an estimated 187,200 metric tons of gold in the world as of 2017, with a hefty price tag of approximately $40 million per ton. In Kilograms - a fairly standard unit of measurement for gold - that’s almost 170 million kg of gold with a current price tag of around $42,000 per kg.

The entire market cap of gold (187,200 x 40 million) places the precious metal’s total worth at around $7.5 trillion.

If we attribute this market cap potential to bitcoin, we would see a price of approximately $350,000 per BTC. So why is BTC currently struggling over $4k?

What does gold have that BTC doesn’t?

Bitcoin and gold share some striking resemblances, they both require mining, they are both finite resources and they both act as a store of value and safe haven assets. However, where Bitcoin truly trumps gold is in its utility.

Read more: Bitcoin or Gold? Or both?

Bitcoin not only acts as a store of value but also a medium of exchange, as well as a payment solution built on top of its very own blockchain enabling immutable transactions, not to mention it's portable!

Moreover, the potential of Bitcoin is far beyond a simple method of payment or safe haven. The emergence of layer 2 technology such as the Lightning Network means that this utility is only growing further.

Read more: 5 things Bitcoin could become

Now, to be fair gold actually has far more utility than many people think. It can be used in dentistry, as a conductor of energy, even medicinally, and of course in jewelry and as a currency.

However, many believe the time is nigh for gold to hang up its boots and hand over the reins to a digital store of value.

Not only is gold too weighty to carry around, but it’s also very susceptible to theft, often requiring either a very deep hole to be stored in or a safe; whereas bitcoin only requires you to remember a private key, something which can be written down, remembered or stored.

Read more: EOS founder: "Over the next two decades, Bitcoin will replace gold"

But we digress… This is about scarcity and Bitcoin as about as scarce as you can get. While there are copycat iterations of BTC, there will never be anything that has been able to capture such a zeitgeist around it, building up years of support, trust, and global development. 

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