Bitcoin is a digital asset whose ownership is tracked on a public ledger and controlled by cryptographic keys, making it hard to counterfeit and easy to verify. Economically, it competes as “scarce, transferable bearer asset” rather than as a claim on cashflows. Its value proposition often centers on scarcity, portability, durability, divisibility, and censorship resistance, similar to monetary traits historically associated with gold.

Bitcoin’s protocol enforces a maximum supply of 21 million BTC, so long-run inflation trends toward zero as issuance ends. This contrasts with fiat systems where supply can expand via central bank policy. A useful concept is “monetary base”: all existing BTC are the base asset; there is no issuer balance sheet promising redemption. Scarcity is rule-based, not institution-based.

New BTC enter via block rewards paid to miners roughly every 10 minutes. The block subsidy started at 50 BTC and halves every 210,000 blocks (~4 years): 50→25→12.5→6.25→3.125… This creates a declining issuance curve often described as “digital commodity supply.” Halvings are widely followed because they reduce new supply flow abruptly relative to prior periods.

Annual issuance falls over time because the subsidy halves, so the “flow” of new coins shrinks while the “stock” (existing supply) grows. This makes Bitcoin’s inflation rate decline mechanically, unlike commodities with responsive production. A simple intuition is that scarcity increases when new supply becomes a smaller fraction of existing supply, which can matter if demand is steady or rising.

A major demand narrative is using Bitcoin as a store of value—an asset held for future purchasing power—especially amid concerns about currency debasement, capital controls, or negative real yields. This demand is reflexive: beliefs about scarcity and adoption can increase willingness to hold, reducing circulating supply and potentially increasing price volatility in both directions when narratives shift.

Some demand comes from using Bitcoin for transactions, cross-border transfers, and censorship-resistant payments. However, base-layer throughput is limited, so everyday retail use is less common than “settlement” use, with scaling solutions (e.g., Lightning) often discussed. Economically, transaction utility can create baseline demand for block space and for BTC as the payment asset in certain contexts.

A large share of demand is speculative: traders buy based on expectations of price appreciation, momentum, or macro conditions. As market liquidity and access improve (exchanges, ETFs in some jurisdictions, custody), marginal buyers can enter more easily. Portfolio framing treats BTC as a volatile, non-sovereign asset with potential diversification benefits, though correlations can rise during stress events.

Bitcoin’s price is discovered through continuous trading across venues where order books match buyers and sellers. The marginal trade sets the last price, but “market price” reflects depth and liquidity: a large market order can move price if order books are thin. Because Bitcoin trades globally 24/7, news and flows can reprice quickly, and arbitrage tends to align prices across exchanges (imperfectly).

Even with near-fixed supply, price can be highly volatile because demand varies significantly and because short-term supply on exchanges is flexible (holders can decide to sell). The relevant concept is “free float”: coins held long-term are effectively removed from active supply, so small changes in net buying/selling can have outsized effects. Leverage and derivatives can amplify swings through liquidations.

Miners earn revenue from block subsidy + transaction fees and incur costs (hardware, energy). They are incentivized to follow consensus rules because honest mining is rewarded, while attacks are costly and uncertain. Economically, the “security budget” is the total miner revenue available to pay for real-world costs that secure the chain; higher price can increase security by making mining more profitable and competitive.

Bitcoin targets ~10-minute blocks by adjusting mining difficulty about every 2016 blocks (~2 weeks). If more hashpower joins, difficulty rises so blocks don’t come faster for long; if miners leave, difficulty falls. This mechanism makes issuance timing relatively predictable and prevents miners from “speeding up” supply in response to higher prices, unlike commodity extraction where output can ramp with incentives.

Users bid for limited block space via transaction fees; during congestion, fees rise as people compete for inclusion. Over time, as subsidies decline, fees are expected to play a larger role in miner revenue. Economically, block space behaves like scarce capacity with auction-like pricing. This creates a tradeoff: higher fees can support security but may reduce affordability for small transactions.

Bitcoin’s usefulness can increase with more participants: more holders, merchants, developers, and infrastructure can improve liquidity, resilience, and integration. This is a classic network effect story, though not guaranteed. Adoption can also be path-dependent: early liquidity and brand recognition attract more users. For a general audience, this explains why “being first and biggest” can matter in monetary competition.

Gold has physical scarcity and long history but is costly to move; fiat is flexible and widely accepted but depends on issuers and policy. Bitcoin aims for digital scarcity with easy transfer and verifiability, but has higher volatility and evolving regulation. This comparison helps frame demand: some buyers want “hard money” properties (gold-like), others want payment utility (fiat-like), and Bitcoin sits between.

Bitcoin has experienced repeated boom-bust cycles often linked to liquidity, leverage, macro conditions, and shifting narratives. Halving years are frequently highlighted because issuance drops mechanically, while demand can be cyclical; outcomes vary and are not guaranteed. Using past cycles as case studies helps explain reflexivity: rising prices attract attention and capital, which can push prices higher, and reversals can cascade via forced selling.