Deflationary

Deflationary refers to a key feature of Bitcoin’s monetary policy characterized by a steadily decreasing rate of new coin issuance, culminating in a fixed total supply of 21 million bitcoins. Unlike traditional fiat currencies, which can be printed in unlimited quantities by central banks and are thus inherently inflationary, Bitcoin’s supply is strictly capped. This built-in scarcity means that over time, fewer new bitcoins enter circulation, which can increase the cryptocurrency’s purchasing power if demand remains steady or grows.

Bitcoin achieves its deflationary nature through a process called “halving,” which occurs approximately every four years. During a halving event, the reward miners receive for validating transactions is cut in half, effectively reducing the flow of new bitcoins. This mechanism ensures that the supply growth slows progressively until all 21 million bitcoins have been mined, expected around the year 2140. Because of this predictable issuance schedule, Bitcoin contrasts sharply with the inflationary models of most fiat currencies, which often lose value as governments expand the money supply to stimulate economies.

This deflationary design can encourage users to hold Bitcoin as a store of value, anticipating that its scarcity will lead to appreciation over time. It also aligns Bitcoin more closely with commodities like gold, which are valued for their limited supply. However, while deflationary currencies may preserve wealth, they can also discourage spending, since holders may prefer to accumulate rather than use them. Understanding Bitcoin’s deflationary policy is essential for grasping its role as both a digital asset and a novel form of money.