Bitcoin's resurgence has sparked renewed interest, inviting a fun and fresh comparison with its age-old rival gold. As we embark on this playful journey, let's compare these using the analogy of two video games series to explain how rarity is calculated.
The video game analogy of how rarity is derive
Think of Bitcoin as a limited-edition video game series. There are only 21 million copies of this game ever going to be released — no more, no less. This is the total supply of Bitcoin. Just like a rare, limited edition game, the fewer there are, the more valuable each one becomes.
Now, about every four years, the rate at which these 'games' (bitcoins) are released gets cut in half. (This is referred to as the Halvening) This is like the game developers saying, "We're going to release fewer copies from now on." At first, lots of copies were released, but every four years, the new releases slowed down. By 2024, these game releases will become even rarer, making each existing game more valuable because there will be fewer new ones coming out.
On the flip side, think of gold like a popular game franchise that keeps releasing new games. There's a lot of it, and more keeps getting made. While the games are popular and valuable, they're not as rare because there's no set limit to how many will be produced. More gold can always be mined, so it's hard to say just how rare each piece of gold is. It is more nebulous.
Bitcoin is like having a super rare, limited edition game from a series with a known end. There's a cap on how many will ever exist, and they become harder to get as time goes on. In contrast, gold is like a long-running game series without a set end, where new games keep coming out, making it less rare in comparison. Because the rarity of Bitcoin mimics a limited edition game, it can drive its value for collectors and enthusiasts. This scarcity, combined with its predetermined release schedule, is what makes Bitcoin potentially more rare than gold.
Another way to derive rarity, the mining rate
Let's first assume Bitcoin can double, basically meaning that there is no cap. Let's take our current known data and calculate how long it would take for us to mine our current supply of each starting in 2024. Basically, how long does it take gold and Bitcoin’s total supply to double?
To double the current gold supply of 200,000 tonnes it would take about 43.1 years, using an average annual production rate of 3,250 tonnes. This estimate is based on the Rule of 70, a common method for estimating doubling time given a constant growth rate.
Theoretically, if it were possible to double the current supply of Bitcoin, ignoring its hard cap of 21 million, it would take approximately 86.8 years to mine an additional 19 million Bitcoins. This calculation takes into account the halving event in 2024, which reduces the daily mining rate. This is only using the upcoming havening rate.
Considering all future halving events and the decreasing mining rate, theoretically, it would take approximately 4,340 years to double the current supply of Bitcoin, which is over 19 million bitcoins. This calculation assumes that the mining process continues even as the reward for mining decreases due to the halving events.
Bitcoin is the winner, or is it?
As shown above, you can clearly see that from a rarity perspective, Bitcoin is a clear winner. Now, with all that being said, scarcity is only one part of how value is derived. The biggest driver of value is people. Or should I say what people perceive things are worth? This can be affected a lot by speculating on future adoption, widespread use, economic cycles, and other more nuanced factors. I do find cryptocurrency intriguing and very much playing a role in shaping the future. I also think that gold has intrinsic value that exists outside of its use as a currency, so it's hard to really say any asset is clearly better than another. Each one comes with its own risks and rewards. The more you know the better you will be able to leverage those assets.