People often ask me, "Bitcoin has a total supply of 21 million coins, isn't that much more reliable than the dollar? Will it eventually replace the dollar?"
People often ask me, "Bitcoin has a total supply of 21 million coins, isn't that much more reliable than the dollar? Will it eventually replace the dollar?" Every time I hear such questions, I want to pull out my phone and show them two pictures: one is the Bitcoin price chart over the past six months, jumping from 60,000 to 110,000 and then dropping back to 80,000, and the other is a price tag showing an 8% increase in supermarket egg prices.
What does this mean? Bitcoin and the dollar are not even in the same league; it's like you can't use a sports car to haul goods, nor can you use a truck to race. Today, let's set aside those "disrupting hegemony" slogans and explain this matter from the fundamental logic of economics.
The Essence of Currency: A Continuous Division of Roles for Thousands of Years
When humans first used shells as money, they probably didn't foresee the later evolution into gold, copper coins, paper money, and digital currency. However, after thousands of years of evolution, the currency system has always followed an iron law: No currency can simultaneously serve as a "safe" and a "wallet."
Why did gold exit daily circulation? Because carrying gold bars to buy groceries is simply absurd. Why doesn't the dollar dare to mimic Bitcoin's fixed supply? Because the economy needs central banks to adjust the faucet to prevent droughts and floods.
Behind this is a fundamental split in the functions of money. Economists have long divided money into three roles: piggy bank (store of value), payment code (medium of exchange), and measuring unit (unit of account). Gold excels in the "piggy bank" domain, but using it as a "payment code" can be fatal—during the 2013 Cyprus financial crisis, someone actually tried to pay for surgery with gold bars, and the doctor wasted half an hour checking the purity with calipers, delaying the rescue. However, to be fair, the dollar has perfected the "payment code," but its purchasing power has shrunk by 40% over the past twenty years; storing dollars is like leaving ice cubes in the sun.
A fixed total supply and ease of storage make such items suitable as a piggy bank, referred to as a "store of value" in economics, because it can store your value without the constant concern of inflation and depreciation risks associated with fiat currency. However, due to the fixed total supply and scarcity effect, the price cannot remain unchanged; if the consensus is strong enough, it will continuously appreciate, making it unsuitable as a “payment code.”
Items suitable as payment codes must have a controllable and constantly changing total supply. When the price needs to rise, the issuance must be reduced; when the
