Is now a good time to invest in Bitcoin?"

Bitcoin is digital money that operates on a decentralized global peer-to-peer network. Bitcoin has a fixed supply that cannot exceed 21 million units. Each Bitcoin is divisible into 100 million sub-units called Satoshis. Cryptography and specialized computers known as miners keep the Bitcoin Network secure and resistant to fraud. The act of mining confirms transaction blocks, adds transaction blocks to a permanent public ledger called a blockchain, and brings new Bitcoin into circulation until the fixed supply limit is reached. Over 93% of Bitcoin is already in circulation.

Bitcoin is digital money without an issuer. Bitcoin is not controlled by any government, central bank, corporation, or authority. Unlike most government-issued currencies, Bitcoin exists only in digital form; there are no physical bills or coins. People can use Bitcoin as they would other forms of money -- to buy goods and services, or to save it for the future. Bitcoin began transacting in January 2009 and has been operating ever since.

Bitcoin transactions occur over a globally decentralized peer-to-peer network of computers. Each computer connected to the Bitcoin Network is known as a node. Anyone can operate a node in the Bitcoin Network by downloading and installing software. However, operating a node is not required to transact on the network. Users transact directly with other users by sending or receiving Bitcoin over the Bitcoin Network. Using Bitcoin is permissionless. This means anyone can transact on the Bitcoin Network without receiving permission or submitting account applications. Bitcoin transactions operate very differently than traditional electronic payments. In traditional finance, banks operate as trusted intermediaries between customers and merchants. People must trust banks to verify availability of funds, check for fraud risks, and settle funds among the parties. The Bitcoin Network is designed to operate without relying on the trust of financial intermediaries.

Most government-issued currencies have an elastic money supply. This means the amount of money in circulation changes. Generally, the supply of government-issued currencies increases over time. As an example, in the United States, the money supply has increased by 14x during the 43-year period from 1980 to 2023. In contrast, Bitcoin has an inelastic supply. By design, the maximum number of Bitcoin will be just under 21 million. There will never be more than 21 million Bitcoin. Digital scarcity by design is why many people view Bitcoin's monetary properties as a superior store of value when compared to other currencies.

Bitcoin is divisible into smaller units known as Satoshis. This enables people to buy, sell, send, or receive tiny fractions of a Bitcoin. Just like 1 U.S. Dollar is divisible into 100 U.S. Cents, 1 Bitcoin is divisible into 100 million Satoshis. Accordingly, the maximum supply of Satoshis is approximately 2.1 quadrillion = 100 million Satoshis per Bitcoin x 21 million Bitcoin. High divisibility makes Bitcoin transactions adaptable to a wide range of values, which is useful for micro-transactions.

Bitcoin operates in periods called epochs. Each epoch lasts approximately 4 years. Epochs are structurally significant to Bitcoin's supply dynamics. The supply of additional Bitcoin entering circulation reduces by 50% every epoch. This is known as "halving." Here is a summary of past and upcoming epochs:
 

• First epoch (Began: January 9, 2009; Ended: November 28, 2012): Introduced 10.5 million Bitcoin into circulation.
• Second epoch (Began: November 28, 2012; Ended: July 9, 2016): Introduced 5.25 million additional Bitcoin into circulation.
• Third epoch (Began: July 9, 2016; Ended: May 11, 2020): Introduced 2.625 million additional Bitcoin into circulation.
• Fourth epoch (Began: May 11, 2020; Ended: April 19, 2024): Introduced 1.3125 million additional Bitcoin into circulation.
• Fifth epoch (Began: April 19, 2024; Ends: 2028): Expected to introduce 656,250 additional Bitcoin into circulation.
• Sixth epoch (Begins: 2028; Ends: 2032): Expected to introduce 328,125 additional Bitcoin into circulation.
• Seventh epoch (Begins: 2032; Ends: 2036): Expected to introduce 164,062.5 additional Bitcoin into circulation.

Notice how the halving events reduce the amount of additional Bitcoin entering circulation. Halving events are designed to control inflation and mimic the scarcity of precious resources. As of April 2024, over 93% of Bitcoin is already in circulation. It will take 32 halving events until all Bitcoin are in circulation, which is estimated to occur around the year 2140.

Bitcoin "miners" are specialized computers in the Bitcoin Network that work to solve cryptographic puzzles. Miners compete to solve the cryptographic puzzle first. The first miner to solve a cryptographic puzzle earns Bitcoin mining rewards. Only the first miner is rewarded -- there is no second best. Once a cryptographic puzzle is solved, Bitcoin miners turn their attention to the next cryptographic puzzle. Most Bitcoin mining operators pool their computational resources, working together and sharing rewards. Miner financial incentives are important to keeping the Bitcoin Network secure.

Bitcoin uses advanced cryptography to secure transactions. This cryptographic foundation is what makes Bitcoin secure and resistant to fraud or counterfeiting. For these security reasons, solving Bitcoin's cryptographic puzzles is difficult and resource intensive. For example, imagine a jigsaw puzzle. Assembling a jigsaw puzzle requires effort and work. Once assembled, the work is easy to prove, because the assembled jigsaw puzzle matches exactly the image on the box. If someone removes a puzzle piece or tries to move a puzzle piece from one spot to another, it is obvious to anyone paying attention. In this sense, jigsaw puzzles are difficult to solve, but easy to verify.  Similarly, cryptographic puzzles are difficult to solve but easy to verify. Once a Bitcoin cryptographic puzzle is solved, it is obvious to other nodes if someone tampers with it. When a miner solves a Bitcoin cryptographic puzzle, a block of transactions is added to a permanent public ledger. Each block of transactions is cryptographically linked to the prior block of transactions, creating a metaphorical chain of blocks. This chain of blocks is called the Bitcoin Blockchain. Every block of transactions since the Bitcoin Network began in 2009 can be viewed, explored, and analyzed. This transparency is a hallmark of the Bitcoin Network. Nodes on the Bitcoin Network can have an exact copy of the entire Bitcoin Blockchain, making it easy to verify transaction blocks. Nodes reject confirmed transaction blocks that have been tampered with.

On average, a miner solves a cryptographic puzzle every 10 minutes. This 10-minute average is a foundation of the Bitcoin Network's architecture. So, what happens as technology advances and computers get more powerful? Over time, the 10-minute average would reduce as more powerful computers solve the cryptographic puzzles faster. The Bitcoin Network was programmed to address this issue. Approximately every two weeks, the Bitcoin Network adjusts its difficulty setting. If miners are solving cryptographic puzzles faster than every 10 minutes, then the network difficulty will increase. If miners are solving cryptographic puzzles slower than every 10 minutes, then the network difficulty will decrease. The difficulty adjustment ensures that a new block of transaction data is added to the Blockchain approximately every 10 minutes.

People invest capital and spend computational resources mining Bitcoin because of financial incentives -- the mining rewards. There are two components to mining rewards: (1) a block subsidy and (2) Bitcoin transaction fees. Bitcoin enters circulation through the block subsidy. The amount of block subsidy is based on the epoch. The Bitcoin Network is in its fifth epoch, which began April 19, 2024. Here is a summary of the Bitcoin block subsidy per block of transactions for past and upcoming epochs:

• First epoch: 50 Bitcoin.
• Second epoch: 25 Bitcoin.
• Third epoch: 12.5 Bitcoin.
• Fourth epoch: 6.25 Bitcoin.
• Fifth epoch (current): 3.125 Bitcoin.
• Sixth epoch (Begins ~2028): 1.5625 Bitcoin.
• Seventh epoch (Begins ~2032): 0.78125 Bitcoin.

As an example, in May 2024, a miner that solves a Bitcoin cryptographic puzzle earns mining rewards of 3.125 Bitcoin as a block subsidy + transaction fees on the block of transactions. Those 3.125 Bitcoin were not previously in circulation. As the epochs advance, the Bitcoin block subsidy decreases. After 32 epochs, the block subsidy reduces to zero, making transaction fees increasingly important to Bitcoin miners. Bitcoin transaction fees are determined by network demand. During periods of high demand, Bitcoin transaction fees increase. During periods of low demand, Bitcoin transaction fees decrease. This fee mechanism ensures the efficient processing of transactions, especially in periods of network congestion. 

Bitcoin's legal status varies by jurisdiction. Some countries have embraced it, while others have attempted to impose restrictions or outright bans. It is important to be aware of your jurisdiction's stance on Bitcoin and comply with applicable laws and regulations. The legal and regulatory landscape is evolving, and staying informed about changes is important for users and investors.

As you venture down the Bitcoin rabbit hole, know that knowledge is power. There are several Bitcoin educational resources available that can develop your understanding. However, the quality of educational resources can vary significantly. Those new to Bitcoin would be well-served to watch the film God Bless Bitcoin. The Bullish Case for Bitcoin by Vijay Boyapati is a brilliant article that Mr. Boyapati later expanded into a book. Other recommended Bitcoin books that explore monetary principles include The Bitcoin Standard, The Fiat Standard, The Price of Tomorrow, and Broken Money. If you prefer watching video content to reading books, then check-out the 30-minute video of Broken Money. Swan Bitcoin offers a free introductory course where people can learn Bitcoin basics in just 1 hour. A high quality and entertaining Bitcoin podcast series is What Bitcoin Did. Bitcoin University is another good resource, featuring no-cost educational videos and premium content for paid subscribers. BTC Sessions offers great training videos on apps and tools to obtain, use, and secure Bitcoin. Finally, Jameson Lopp is a security expert with excellent resources to protect and safeguard your Bitcoin savings. Understanding Bitcoin’s fundamentals, its market dynamics, and the broader economic context will equip you to make informed decisions about this digital asset.

Bitcoin was created to address several challenges and limitations inherent in the traditional financial system:

• Accessibility in Restrictive Regimes: In countries where governments tightly control or restrict access to financial resources, Bitcoin provides an alternative way to access and use money without government intervention.
• Modernizing Bearer Money: While carrying physical cash (bearer money) can be impractical in today's digital economy, Bitcoin offers a secure and electronic alternative that still maintains many of the benefits of cash, like direct transactions between individuals.
• Decentralizing Monetary Control: Bitcoin reduces reliance on central authorities, like central banks, for managing money supply and monetary policy. This decentralized approach aims to prevent problems caused by poor policy decisions or mismanagement by these authorities.
• Banking the Unbanked: Many people in emerging and frontier markets lack access to traditional banking services. Bitcoin allows these individuals to participate in the global economy through a digital platform.
• Combating Currency Debasement: Traditional currencies often lose value over time due to inflation and decisions to expand the money supply. Bitcoin's fixed supply protects it against such debasement, potentially preserving its value better than traditional currencies.
• Privacy and Censorship Resistance in Transactions: Bitcoin transactions are not controlled by centralized financial authorities, providing a level of privacy and resistance to censorship not typically found in traditional electronic payments.
• Solution for Negative Real Yields: Central bank policies like quantitative easing can lead to lower yields on government securities, often below inflation. This reduces real income for savers and fixed income investors, who often include retirees and others on fixed incomes. Bitcoin presents an alternative investment option, that can potentially hedge against artificially suppressed yields on government securities.

There are 4 ways to acquire Bitcoin:

1. Exchange Other Money for Bitcoin: This includes buying Bitcoin through cryptocurrency exchanges, Bitcoin-only Brokers, Bitcoin ATMs, or peer-to-peer transactions.
2. Get Paid in Bitcoin for Selling Goods or Providing Services: This encompasses earning Bitcoin through employment, freelance work, offering goods and services, participating in affiliate programs, or completing tasks or activities that reward in Bitcoin.
3. Operate a Miner to Earn Mining Rewards: Engaging in the Bitcoin mining process to earn Bitcoin as a reward for validating transactions and securing the blockchain.
4. Receive Bitcoin from Others as a Gift: Inheriting or being given Bitcoin as a gift from family, friends, or other individuals.

Most people acquire Bitcoin through cryptocurrency exchanges or Bitcoin-only brokers. These platforms allow users to buy Bitcoin using traditional currencies like USD, EUR, and others. Here's how people can start:

• Choose a Platform: Select a reputable cryptocurrency exchange or a Bitcoin-only broker. Look for platforms with a strong track record of security, user-friendly interfaces, reasonable fees, and compliance with financial regulations.
• Create an Account: Sign up and verify your identity as required by the platform. This step typically involves providing some personal information and may include a photo ID for verification purposes, in line with anti-money laundering ("AML") and know your customer ("KYC") regulations.
• Deposit Funds: Transfer funds from a bank account or use a credit/debit card to deposit money into your platform's account.
• Purchase Bitcoin: You can buy Bitcoin after funding your account. Most platforms allow you to purchase fractions of a Bitcoin, accommodating various budgets. Some people also choose to setup automated savings plans (ex. buy $50 in Bitcoin every week). In such cases the amount of Bitcoin purchased weekly will vary based on Bitcoin's exchange rate with other currencies.
• Transfer to a Wallet: For enhanced security, many people transfer Bitcoin from an exchange account to a digital wallet in their control.

Merchants worldwide increasingly accept Bitcoin for goods and services, both online and in physical stores. Look for the 'Bitcoin accepted here' sign or check the merchant's payment options. You can also use Bitcoin to transfer funds across borders quickly and without the challenges of working through banks operating in different jurisdictions. This makes Bitcoin an excellent tool for remittances. Additionally, many people save and hold Bitcoin as an investment, much like stocks or gold, due to its potential for appreciation in value. Bitcoin transactions are irreversible, so it is a good practice to double-check the addresses and amounts before sending. Also, be aware of the legal and tax implications in your jurisdiction when using Bitcoin for transactions or investments. As with any financial activity, exercise caution and educate yourself on best practices for security and compliance.  

When a user sends Bitcoin, the transaction is broadcast to the Bitcoin Network. Bitcoin is sent from the sender's wallet to the recipient's wallet. However, the transaction is not immediately confirmed. Transactions are not confirmed until a miner records them into a block by solving a cryptographic puzzle. Once a transaction is confirmed in a block, it is difficult to change. On average, a block of transactions is recorded on the Bitcoin Blockchain every 10 minutes. Transactions awaiting confirmation are stored in 'memory pools.' Financial incentives encourage miners to select from memory pools any transactions paying the highest transaction fees. During periods of network congestion transactions may sit in the memory pool for hours or days if the transaction fee is set too low.

The Bitcoin Network was designed so blocks of transactions cannot exceed a certain data size. This intentional design constraint keeps the Bitcoin Blockchain to a modest size. As of April 2024, the Bitcoin Blockchain is just over 640 Gigabytes of data. The modest size of the Bitcoin Blockchain enables anyone to operate a node. Making node operation widely accessible keeps the Bitcoin Network decentralized. Decentralization mitigates the risk of powerful authorities, corporations, or governments hijacking the network.

Since each transaction represents data, block size limits restrict how many transactions can fit into each block. Many newcoiners think the amount of Bitcoin sent determines the transaction size. This is incorrect. Transaction size has nothing to do with the amount of Bitcoin sent. Instead, transaction size depends on how much data the transaction contains. Transactions with several inputs and outputs contain more data. Transactions that contain more data require more block space. Accordingly, larger transactions that require more block space will need to pay larger transaction fees.

Bitcoin represents over 50% of the entire market capitalization of all cryptocurrencies. While there are thousands of other cryptocurrencies, none have developed a network effect like Bitcoin. In fact, developing such a network effect is challenging.

"Facing any digital currency built after bitcoin is a deep existential crisis: because bitcoin is already in existence, with more security, processing power and an established user base, anybody looking to use digital cash will naturally prefer [bitcoin] over smaller and less secure alternatives. Because the replication of the code to generate a new coin is almost costless, and the imitation coins proliferate, no single coin is likely to develop any sort of significant growth or momentum unless there is an active team dedicated to nurturing it, growing it, coding it, and securing it.” - The Bitcoin Standard

Taken further, if an active team is required to nurture, grow, code, and secure a cryptocurrency, then that active team has centralized control over the software code. Central control over the software code cannot coexist with a decentralized, permissionless, and trustless digital cash system.

Cryptography secures Bitcoin in digital wallet addresses. Think of a digital wallet address like a vault. The location of the vault may be known publicly, but accessing the vault requires the correct key. If you do not have the correct key, you cannot get into the vault.

Similarly, spending Bitcoin requires a private key to sign a Bitcoin transaction. Just like the right physical key can open locked doors and provide access to secure spaces, the right Bitcoin private key can metaphorically unlock a digital wallet address to sign a transaction. Once signed, the transaction is broadcasted to the Bitcoin network for confirmation by miners. This is how Bitcoin is spent or transferred from one digital wallet address to another.

The people or entities that control private keys are custodians. A custodian can transfer any of the Bitcoin in its custody at any time and without permission. Custodians have significant power since they can unilaterally spend all the Bitcoin in their custody -- even Bitcoin they do not own.

There are three types of Bitcoin custody: Third-Party Custody, Self-Custody, and Collaborative Custody. Understanding the differences can help people decide what is most suitable for their circumstances.

When you purchase Bitcoin through a cryptocurrency exchange or a Bitcoin-only broker, you do not directly control your Bitcoin. Instead, you entrust a third-party, the cryptocurrency exchange or broker, to take custody of your Bitcoin. This third-party custodian provides access to your Bitcoin through user interfaces. This resembles bank accounts with online banking and mobile apps, along with customer support services.

Think of third-party custody much like a safety deposit box at your local bank. The bank is responsible for safeguarding the valuables in your safety deposit box. You can access the safety deposit box during regular bank hours. You rely upon and trust the bank to provide you with access to your valuables. You rely upon and trust the bank to let you take your valuables with you. You rely upon and trust the bank’s security protocols to safeguard your valuables. This can work if the bank always satisfies its commitments to you.

While convenient, entrusting your Bitcoin to third parties exposes you to counterparty risk. This risk can be significant. For example, what happens if your custodian goes bankrupt or fails? If your custodian goes out of business, there is no guarantee that your Bitcoin is safe. In the United States, the Federal Deposit Insurance Corporation (“FDIC”) guarantees bank depositors’ funds when banks become insolvent. There are no such guarantees with Bitcoin.

As an example, Mt. Gox was a cryptocurrency exchange that handled over 70% of Bitcoin trading volume at its peak. In 2014 it filed for bankruptcy after security breaches led to the theft of over 850,000 Bitcoin. It took 10 over years for the bankruptcy trustee to start making payments to Mt. Gox creditors. The creditors will never be made entirely whole.

Third-party custody provides users with convenience, but at the expense of access and exclusive control. “Not your keys, not your Bitcoin,” is a mantra expressed by many Bitcoiners.

In the traditional financial system, you do not need to keep all your money in banks. You can withdraw cash from your bank account. You can also receive cash for work. You can use your cash on hand to purchase goods, services, and assets from others. People with physical possession of cash has self-custody over their cash. Similarly, if you control the private keys to your Bitcoin, you have self-custody over your Bitcoin.

After you purchase Bitcoin from a cryptocurrency exchange or Bitcoin-only broker, you can request the platform transfers the Bitcoin to a self-custody wallet address that you control. This is like withdrawing cash from an ATM -- once withdrawn, you have full control over your cash.

Self-custody solutions for Bitcoin have become increasingly user-friendly. However, a certain level of technical knowledge is still necessary to ensure the security and accessibility of your Bitcoin.

• Digital Wallets: Many newcoiners think digital wallets store their Bitcoin. This is incorrect. The record all Bitcoin transactions and the addresses that contain Bitcoin exists in the Bitcoin Blockchain. Instead, digital wallets safeguard the private keys that ‘unlock the Bitcoin’ from a wallet address. Think of digital wallets as a safe that holds your private keys. Digital wallets can be hardware or software. Hardware wallets are physical devices that store private keys offline, offering more robust protection against online threats. Never purchase hardware wallets from third-party retailers, even if a third-party retailer’s subscription offers free shipping. For better security, purchase hardware wallets only from the manufacturer. Software wallets, while more accessible, require diligent security practices to guard against hacking and malware. Many software wallets are available to download and use at no cost, although some developers may charge for certain functionality.

• Seed Phrase Backup: The cornerstone of Bitcoin self-custody is the seed phrase. The seed phrase is a series of words generated by a digital wallet. The seed phrase allows access to your Bitcoin. Securely backing up and protecting the seed phrase is critical. A good practice is to record the seed phrase on a physical medium (ex. write it down using pen and paper or punch it into a fire-resistant steel plate). Keep the seed phrase physical medium in a safe and secure location that is resistant to the elements and tampering. Never type a seed phrase into a computer. Never save a seed phrase in a local digital file or in cloud storage. Never take a digital photo of a seed phrase. Exposing a seed phrase to others can lead to irreversible loss of Bitcoin.

• Single Sig vs. Multi-Sig: Self-custody setups range from single-signature (single sig) wallets, where one private key controls the Bitcoin, to multi-signature (multi-sig). Multi-signature requires multiple private keys to jointly authorize a spending transaction. Multi-sig offers enhanced security by distributing control among several parties or devices. This reduces the risk of theft or loss through a single point of failure. However, it also increases the complexity of the setup and recovery. A multi-signature approach may be useful for technically proficient organizations that want multiple approvals on Bitcoin transactions.

Self-custody is not just about adopting security measures -- it is about embracing personal accountability. For those willing to navigate the complexities, self-custody offers a fulfilling path to financial self-sovereignty.

Collaborative Custody represents a hybrid approach. It combines the security benefits of self-custody with the convenience and support of third-party custody.

Collaborative custody solutions typically employ ‘2 of 3’ or ‘3 of 5’ multi-signature configurations. Through these configurations, at least two 2 out of 3, or 3 out of 5 private keys are required to transact Bitcoin. As an example, this setup may involve the Bitcoin owner, trusted third parties (ex. attorney, business partner, family member, financial consultant, etc.), and a collaborative custody service provider. Individually, none of the parties can transact Bitcoin, including the collaborative custody service provider because a quorum is required. Collaborative custody offers a balanced solution for those who seek both autonomy over their Bitcoin and the peace of mind that comes with additional safeguards.

• Multi-Signature Security: Central to collaborative custody solutions is multi-signature (multi-sig) technology, which requires multiple keys to authorize transactions. This significantly enhances security. However, it introduces complexity and costs for setup, management, and transaction execution.

• Partners: Selecting the right partners for collaborative custody requires proper due diligence. While fees can be a deciding factor, it is prudent to balance fees with the quality of the onboarding process, reliability, security, and support offered. The best partners provide a transparent pricing model that aligns with the value they offer to your Bitcoin management strategy.

• Structured Approaches: A unique advantage of collaborative custody is its structured approach to access and recovery. This mitigates the risks of loss from personal errors more common in self-custody configurations. However, these structured approaches involve ongoing costs for maintaining the infrastructure, support services, and recovery mechanisms.

• Weighing Trust and Against Technology: Collaborative custody is a blend of technological solutions and trust in chosen partners and services. This reliance on external entities requires service fees, which can vary widely depending on the provider's reputation, the level of service provided, and security infrastructure. You also sacrifice some privacy with collaborative custody, since partners know exactly how much Bitcoin you own.

Incorporating collaborative custody into your Bitcoin management plan requires a clear understanding of the trade-offs between cost, exclusive control, privacy, and security. While there are inherent costs, the value provided in security and peace of mind can be considerable. It may be wise to evaluate the costs/benefits to determine if collaborative custody aligns with your financial and security objectives.

For individuals seeking to own Bitcoin but lacking technical skills or the desire to pay for collaborative custody services, and who are wary of traditional third-party custodians, the 'Uncle Jim' model provides an alternative.

The ‘Uncle Jim’ model relies upon high-trust personal relationships. People in high-trust relationships are likely to care for and look out for one another, mitigating the risks of fraud or theft. Under an ‘Uncle Jim’ model, the Bitcoin owner entrusts a technically knowledgeable close friend or family member with their Bitcoin. The person serving as ‘Uncle Jim’ has third-party custody over Bitcoin.

A Bitcoin owner may feel more comfortable relying upon this high-trust relationship with a known individual. The alternatives, such as low-trust relationships with cryptocurrency exchanges or brokers, may be less appealing.

Bitcoin's digital scarcity comprises several key components:

1. An inelastic supply capped at 21 million bitcoins.
2. Halving events that reduce block subsidies by 50% each epoch.
3. A block size limit, which restricts the amount of data in each block.
4. Network difficulty adjustments to maintain a 10-minute average block time.

No individual can modify Bitcoin's supply dynamics without broad support from the Bitcoin Network. Any changes require adoption by Bitcoin node operators. Previous attempts to alter Bitcoin supply dynamics have consistently failed. Bitcoin's digital scarcity coupled with difficulty to change its supply dynamics is a major factor in Bitcoin's appeal as a store of value, surpassing traditional assets.

For example, when silver prices surge, the market responds. Producers increase mining activity, expanding silver supply to meet demand, thus normalizing prices. This principle also applies to gold, other precious metals, and commodities like corn, oil, soybeans, and wheat. Price increases send economic signals to producers, making previously unprofitable production viable.

In contrast, a sharp rise in Bitcoin's price does not lead to an increased Bitcoin supply. The introduction of more miners can only exploit this situation temporarily, as the network soon adjusts its difficulty to maintain the 10-minute block time average. Thus, Bitcoin's supply dynamics remain unalterably fixed.

In most countries, the prevailing monetary system is a fiat standard, underpinned by fractional reserve banking and regulated by a central bank. In these systems, the money supply expands when banks issue new loans. The money supply contracts when loan principal is repaid or defaulted on. Historically, under the modern fiat standard, the money supply tends to expand and very rarely contracts.

When more money is introduced into an economy without commensurate increases in economic output, the currency's value often diminishes. This phenomenon, known as inflation, occurs because more money is competing for the same amount of goods and services, leading to higher prices and reduced purchasing power. Inflation particularly affects savers, as it erodes the value of their savings, posing even greater challenges in regions experiencing high inflation rates.

Bitcoin presents an alternative in this landscape due to its inherent scarcity. Unlike fiat currencies, Bitcoin has a capped supply, which means its value is not subject to the same inflationary pressures. This scarcity can make Bitcoin an appealing option for savers, especially in economies with high inflation, as it offers a store of value that is not prone to devaluation by expanding money supplies. Moreover, Bitcoin's decentralized nature means it is not controlled by any central authority, adding a level of economic independence not found in traditional banking systems.

Fiat money is debased through inflation. More simply, inflation erodes fiat money's value. One measure of inflation is the Consumer Price Index ("CPI"). Historically, the yields on bank savings and short-duration cash equivalents, such as 3-Month U.S. Treasury Securities, lags the CPI.

When the interest on people's savings does not keep pace with inflation, rational people will not save their money for long periods. In this environment, even if the nominal value of savings modestly increases over time, the saver has actually lost value on an inflation-adjusted basis.

Instead, rational people use fiat money to buy assets that better store value and preserve purchasing power. That is why people flock to financial assets, commodities, gold, real estate, and, more recently, Bitcoin. Such assets command monetary premiums as stores of value. As the fiat money supply increases through fractional reserve bank lending, more fiat money goes to acquire these assets. This effect tends to push higher the prices of these assets in fiat monetary terms.

In response to increasing demand that drives asset prices higher in fiat monetary terms:

• companies can issue more shares of stock;
• governments can issue more bonds;
• home builders can construct more houses;
• farmers can produce more corn, soybeans, and wheat;
• gold miners can mine more gold that was previously too costly to extract.

Issuers and produces adjust the new supply of assets to capitalize on higher prices and satisfy the increased demand. However, unlike the other assets listed, Bitcoin's supply dynamics are fixed and predetermined.

Since Bitcoin's supply is fixed, if future demand for Bitcoin increases, what effect might this have on Bitcoin's fiat-denominated price? Additionally, since the supply of fiat money rarely decreases, as the supply of fiat money increases, what effect might this have on Bitcoin's fiat-denominated price? Regardless of how much people's demand for Bitcoin increases in the future, there is no way to create more Bitcoin to satisfy higher demand. The supply of Bitcoin will never exceed 21 million.