In May 2020, #Bitcoin will experience its third “Halving.” Bitcoin is a digital asset with a fixed & predictable supply, unlike dollars. Bitcoin is designed to be scarce, like gold. Here’s what that means and why it matters in historical context: blog.coinbase.com/digital-gold-s…
Until 1971, money was directly pegged to gold. As gold is scarce, governments can’t simply produce more for political goals. So the gold standard was broken, the dollar’s value has declined, and gold has risen from a fixed $35/oz to over $1500/oz today. 
Gold has been a store of value primarily because of its scarcity. While gold is shiny and can be useful in electronics, so are other metals, like copper. Yet copper is only a fraction of the value of gold. There is an inverse relationship between scarcity and commodity value.
Imagine that there was a metal as scarce as gold, that has one special advantage: it can be transported over a communications channel. In 2010, Satoshi and other curious netizens would wonder, could something like this ever become a store of value to rival gold?
Bitcoin, like gold, is scarce. Producing new bitcoin requires a great deal of “proof of work” by a process called mining. In order to understand bitcoin’s scarcity, one must understand bitcoin’s supply curve.
Bitcoin has precisely a max supply of 21 million coins, with ~18 million existing currently. Nearly every ten mins, 12.5 new bitcoins are minted as a reward for miners. After May 2020, in an event called the “Halving”, mining rewards will cut in half to 6.25.
Despite two Halvings in the past that limited mining rewards, mining power (hashrate) has recently reached all time highs. Mining plays a critical role in Bitcoin security. As total supply edges toward 21M, network security (hashrate) has increased in parallel.
Mining ensures that Bitcoin maintains advantages over gold. No one knows with perfect certainty how much gold exists above ground; there is no way to independently verify the gold supply. With Bitcoin, anyone with even the simplest computer can verify all bitcoin in existence.
To independently verify the validity of Bitcoin transactions, anyone in the world can run a full node. Currently, there are over 52k nodes operating in 96 countries verifying Bitcoin.
Full nodes can verify that in May 2020, Bitcoin supply issuance will drop to a rate of ~1.7% annually. A term known as stock to flow (or “S2F”) also measures new supply rate over total supply. After the Halving, Bitcoin’s scarcity as measured by S2F will be on par with gold’s.
Demand is as important as supply, and stock to flow forecasts for price will certainly fail if bitcoin does not possess useful qualities beyond supply scarcity. Not to mention, quantitative forecasts will falter in the reality of obstacles such as bitcoin volatility.
Compared to gold, Bitcoin is significantly more volatile. However, BTC volatility is dampening over the years. According to @coinmetrics, avg. 180d volatility has declined over the past decade: from 6.4% (2010-2015) down to 3.7% (2015-2020).
So what gives gold or bitcoin value, in a world without pegged exchange rates? Valuation requires comparing one asset to another with varying volatility. The same holds true for fiat money itself, especially as central banks increase or (rarely) contract money supply.
Economies can sometimes prosper as money supply grows from independent central banking. On the other hand, economic history is fraught with hyperinflation events, whereby money supply overwhelms demand.
This phenomenon has driven demand for gold especially in times of heightened uncertainty. Recently, economic fear as measured by the Global Economic Policy Uncertainty Index is reaching ATHs, alongside gold’s value indexed against major fiat currencies (exempting USD).
This past decade, both #Bitcoin and gold have been viable safe havens amid global economic uncertainty. Armed with a myriad of technological advantages and accelerating development, Bitcoin is digital gold. blog.coinbase.com/digital-gold-s…
