The Economics of Bitcoin

How Bitcoin's fixed supply and halving schedule work, whether it functions as money, and why some call it digital gold.

Bitcoin was launched in 2009 by a person or group using the name Satoshi Nakamoto, who described it in a 2008 paper as “a peer-to-peer electronic cash system”. It was the first cryptocurrency.

Fixed supply

Unlike currencies issued by central banks, Bitcoin has a fixed maximum supply of 21 million coins. New bitcoins are created as rewards for miners who add blocks to the blockchain.

Halving

The reward for mining a block is cut in half roughly every four years, an event called the halving. The reward started at 50 bitcoins per block in 2009 and fell to 3.125 after the halving in April 2024. As a result, new supply slows over time, and the last bitcoin is expected to be mined around the year 2140.

Is Bitcoin money?

Economists judge money by three functions:

Medium of exchange: few businesses accept Bitcoin, and transactions can be slow and costly on the main network, so it is little used for everyday payments.
Unit of account: almost no prices are set in Bitcoin.
Store of value: its price is extremely volatile, rising and falling by large percentages within months.

Most economists therefore argue Bitcoin does not function well as money.

Digital gold

Supporters argue Bitcoin is digital gold: a scarce asset outside government control that can protect against inflation and currency debasement. Critics point out that Bitcoin’s value depends entirely on what people are willing to pay, since it has no underlying income or use outside its network, and that its price has not reliably risen during inflation.

El Salvador

In 2021, El Salvador became the first country to make Bitcoin legal tender. Adoption for everyday use remained low, and in 2025, under an agreement with the International Monetary Fund, El Salvador made acceptance of Bitcoin voluntary.

The halving and supply

Imagine a gold mine whose output halves every four years, no matter how hard miners work. Supply growth slows steadily. Bitcoin's halving builds this into its software. Supporters argue this scarcity supports its value; critics note that scarcity alone does not guarantee demand.

Thinking fixed supply guarantees rising value

Scarcity only supports a price if demand holds up. Bitcoin's price has fallen by over 70 percent from peaks several times, showing that fixed supply does not prevent large losses.

Key takeaways

Bitcoin launched in 2009 with a fixed maximum supply of 21 million coins.
Mining rewards halve roughly every four years, reaching 3.125 bitcoins per block in 2024.
Bitcoin works poorly as everyday money due to volatility and limited acceptance.
Supporters call it digital gold; El Salvador made it legal tender in 2021 but made acceptance voluntary in 2025.