What is Limited Supply? What Does It Provide?

In the unconventional monetary policy approach called quantitative easing, the central banks of the countries increase the nominal money supply of that country. As more money is printed and put into circulation, inflation increases and the value of the unit fiat currency decreases.

Assets with limited total supply among value storage instruments, therefore, ensure that inflation does not occur in their own market.

One of the reasons Bitcoin is likened to digital gold is that the resources of both are limited. However, although gold is a limited resource, what percentage of the total supply has been mined, processed and circulated in the market, so we do not have clear information about the remaining reserve amount. On the other hand, we know when and how much Bitcoin will be produced and how many can be produced in total in which year. A total of 21 million Bitcoins will be mined, which will be completed in 2140.

The Starter Block is the first block of the blockchain to be created, and 50 Bitcoins were generated as a block reward. The Bitcoin block reward is used to identify new Bitcoins that are rewarded to cryptocurrency miners for every block they successfully process on the blockchain network. The halving of new Bitcoin production, which occurs every 10 minutes, in certain periods is defined as the Block Reward Halving. Reward halving repeats every 210,000 blocks and occurs approximately every four years. The initial block reward decreased to 25 BTC on November 28, 2012, to 12.5 BTC on July 9, 2016, and to 6.25 BTC with the halving on May 11, 2020.

The block reward halving was designed by Satoshi Nakamoto to offset inflation, thereby reducing the amount of Bitcoin produced. Thanks to the decentralized nature of the Bitcoin network, the halving takes place independently of individuals and organizations without any negotiations, a country administration or a central authority decision.

Total Supply Unlimited Cryptocurrencies

Cryptocurrencies, which have an unlimited supply of fiat currencies, as central banks do, set this rule in their own protocols. The most well-known cryptocurrencies with unlimited total supply are Ethereum, EOS and Dogecoin. While the total supply of Ethereum is unlimited, its inflation technically decreases every year due to the limit placed on its annual production. For example, when the Ethereum supply is 100 million, when the annual limit of 18 million ETH is removed that year, inflation becomes 18%. Then when the supply is 200 million, the inflation will be 9% as 18 million ETH will be issued that year with the same annual limit.