Scarcity

Scarcity refers to how hard it is to produce more of a good or asset—if you can’t keep making more easily and cheaply, then it’s scarce. The total amount that already exists isn’t as important as whether producing additional units requires significant effort or resources.

A good form of money needs to strike a balance: it should be common enough that people can use it for trade, but not so abundant or easy to make that it loses value. Money that can be created without difficulty tends to lose trust and value over time, while money that is too rare can’t circulate widely enough to support economic activity.

Fiat currencies, which exist as paper notes or digital entries, have little natural scarcity. Governments enforce scarcity in currency by law, restricting official production to authorized entities like central banks. However, commercial banks can expand the money supply cheaply by issuing loans, diluting scarcity further.

Bitcoin stands out because its supply is capped at 21 million coins and new coins can only be created through a resource-intensive mining process. The built-in difficulty adjustment makes sure creating bitcoin always requires real effort, and the halving mechanism ensures new supply drops over time. Together, these features give bitcoin an enforced, provable scarcity unlike traditional currencies or other goods.