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Economic perspectives on the money supply in Bitcoin

Since the number of Bitcoin is fixed, Bitcoin is a deflationary currency. Deflation means that the purchasing power of the individual monetary unit increases over time. The inflation rate in Bitcoin continues to decrease due to the decreasing coinbase. Initially, Bitcoin had high inflation because there was little Bitcoin in the ecosystem and with each new block 50 BTC were added.

There are now over 17 million Bitcoin and 12.5 BTC are added per block. Thus the inflation rate is below four percent per year. You can determine the annual inflation rate yourself. The formula is as follows: Annual inflation = (current coinbase reward x 6 x 24 x 365) / current money supply

Since the money supply increases slightly with each new block, this is not an exact inflation rate. But it's a good clue.

This Bitcoin secret is the two most common perspectives:

According to the British economist John Maynard Keynes deflation is bad for the Bitcoin secret. Read more on: The increasing purchasing power of monetary units encourages people and entrepreneurs to save money instead of consuming and investing.

According to the Austrian economist Ludwig von Mises, deflation is good for an economy because people cannot put off consumption forever. Furthermore, the supporters of the Austrian School are reining in the fact that deflation occurs in all stages of production and that the profit margins of entrepreneurs are not influenced. Deflation favours the "hoarding" - or saving - of capital and investment in long-term projects.

The Coinbase and the Bitcoin Price

The number of Bitcoins emitted by the Coinbase is not directly related to the purchasing power of a Bitcoin. While 50 BTC were distributed per block in 2009, nothing could be bought back then. With 12.5 BTC at the end of 2017, it looked quite different. So it may well be that the 6.25 BTC in 2020 have a higher purchasing power than the 12.5 BTC today.

The coinbase is primarily intended for liquidity and fair distribution of the monetary unit. While in many ICOs all tokens exist since the first hour and are only distributed, in Bitcoin there is a fair distribution of coins for miners that protect the network.

The maximum amount of money in Bitcoin is a constant. It could only be changed by a generally accepted hard fork.