How Bitcoin's Fixed Supply Provides True Price Signals
Hi Plebs,
Money is very important for economies to work properly. Understanding how money is the base that economies are built on helps explain why economic issues happen when the money supply is manipulated artificially. Of course, there are other factors involved too. The money supply isn't the only thing that affects economic activity. Tax rules, government spending, and regulations also play a role.
However, focusing just on those factors would be like trying to fix the windows on the 100th floor of a building when the whole foundation is being supported by one tiny block. That's how important the money system issues are compared to other economic problems.
The core issue that bitcoin aims to solve is fixing that base foundation. If everyone was a bit more humble, they would see that there is no single solution to solve the increasing wealth gap and economic imbalances. There is no one person with a plan or new law that can make everything better. The imbalances created by central control cannot be fixed by more central control - that only makes it worse.
The only real hope is to fix the foundation so everyone can do productive activities without needing conscious control from above. From that stable base, balance would naturally follow.
Bitcoin has a fixed limit of 21 million bitcoins that can ever be created. This limit is enforced in a decentralised way, with no one in control. This removes the ability for anyone to manipulate the bitcoin money supply. Since no person or institution can be trusted to control the money supply responsibly, the only solution is to remove that control and temptation altogether.
The one constant rule of bitcoin is its fixed supply of 21 million. There will never be more than that, no matter what. Everything else may change around bitcoin, but its limited supply will remain a constant to measure all activity against. It provides a source of truth that ensures fair rules for everyone. Because bitcoin's supply can't be manipulated, neither can its price signal.
Undistorted price signals communicate more reliable information. But don't confuse that reliability with price stability or lack of volatility. If bitcoin is worth $72,000 today and $50,000 tomorrow, that changing price simply reflects the undistorted information being communicated.
Bitcoin's fixed supply means bitcoin prices only change based on how much people want bitcoin, not because more bitcoin was created. This removes a major factor that changes normal prices today.
Imagine knowing for sure that every price change happened just because of what consumers want to buy. Not because there is more or less money. It's the difference between prices you can trust and prices that constantly change due to money supply changes.
From now on, this rule will always apply to bitcoin. Everyone can depend on bitcoin's fixed supply. They can be confident that any bitcoin price changes simply show the true demand, not changes in the money supply.
It provides information you can trust by completely removing the ability to manipulate the money supply. Price changes will just communicate the real shifts in what consumers want across the whole economy.
Cheers, and onwards with Bitcoin
