Bitcoin outstanding

Many articles mention, that the limited Bitcoin money bitcoin outstanding is a major advantage of this digital currency. The reasoning usually goes like this. Since Bitcoins can only be created through mining bitcoin outstanding there is an upper limit of 21 million, Bitcoin is supposed to bitcoin outstanding inflation proof. Bitcoin outstanding this was true, Bitcoins would not lose purchasing power. The Bitcoins I own today would buy me the same amount of goods and services tomorrow.

Or a larger amount in the case of deflation. From the quantity theory of money bitcoin outstanding know, that there is a link between inflation and the money supply. A substantial growth of the money supply through money printing at some point is going to cause a loss of purchasing power. Therefore it is interesting to take a closer look at how money is created in the Bitcoin world and how the Bitcoin money supply grows.

While Bitcoins are mined, producing fiat money is called money creation. In a simplified view, there are bitcoin outstanding different types of money creation. Money is either bitcoin outstanding by the central bank or money is created by commercial and other banks. Money created bitcoin outstanding by the central bank is called the monetary base. It comprises currency in circulation notes and coins and deposits of monetary financial institutions MFIs at the central bank.

The monetary base is also called high-powered money because an increase in the monetary base can multiply to a much larger increase bitcoin outstanding the total money supply. The central bank applies a number of measures when it wants to create additional money. Through open market operations the bitcoin outstanding bank grants loans to MFIs against collateral.

Bitcoin outstanding banks create money through lending. When a person holds a deposit at a bank, the bank can take this money and lend it out to a borrower. The borrowed money in turn will be held as a deposit at a bank unless it bitcoin outstanding converted to paper money which again can lend this money out.

Money creation from lending already existed in ancient societies where all money was represented by physical precious coins. Imagine someone takes one coin to buy a vase. The seller of the bitcoin outstanding holds this coin as a deposit at his bank.

The bank bitcoin outstanding this coin out to a second person. Bitcoin outstanding second person also buys a vase for this coin and the seller brings the coin to bitcoin outstanding bank again.

This process could be continued endlessly, as long as the bank finds enough trustworthy borrowers. In this example, one bitcoin outstanding coin bought two vases worth two coins in total. When money is created through lending this is also called fractional reserve banking. We can calculate the maximum amount of money created from fractional reserve banking with the money multiplier. The money multiplier equals 1 divided by the reserve ratio.

This also highlights why the monetary base is called high-powered money. The money supply of fiat currencies is clustered in three groups called M1, M2 and M3.

The definitions of what counts as money and to which of the three groups it belongs varies. An overview is sufficient for our purposes. M1 is also called narrow money. It includes notes and coins in circulation plus deposits bitcoin outstanding people and non-financial businesses the public held in current or checking accounts at MFIs.

M2 includes M1 plus savings deposits and time deposits. M3 includes M2 plus money market instruments with a maturity of less than 2 years. It is important to note that M1 contains both, money created by the central bank as well as money created by commercial banks. These EUR bn are the basis for fractional reserve banking. Therefore the effective money multiplier in the Euro zone is currently somewhere at bitcoin outstanding Now that we have introduced money supply and money creation for a fiat currency, we can look at these terms from a Bitcoin point of view.

Bitcoins are created through mining. Mining is comparable to the original endowment of the public with money that was created by the central bitcoin outstanding. Therefore mined Bitcoins are part of the Bitcoin monetary base. However, there are significant differences between mining and money creation by the central bank. When the public is endowed with new money after a currency reform, money creation by the central bank does not stop.

The central bank keeps increasing the bitcoin outstanding base further which can cause inflation. In the Bitcoin currency system nobody can increase the Bitcoin monetary base beyond the Bitcoins that are created from mining.

There is no central bank in power. Mining is the only source for the Bitcoin monetary base. Thus, mined Bitcoins are the Bitcoin monetary base — and not just a part of it. Also, we never know how much money will be created by a central bank in the future. In contrast, Bitcoin mining is predictable. We know with high certainty how many Bitcoins will be mined over a specified time and therefore the growth rate of the Bitcoin monetary base is predictable. As we can see on the following chart the growth rate will decline dramatically in the near future.

Bitcoin monetary base and growth actual until and projection bitcoin outstanding ; data source: As we have seen with the fiat currency, the second way of money creation is lending by commercial banks. If lending activities existed in the Bitcoin currency bitcoin outstanding well, the total Bitcoin money supply would exceed the number of mined Bitcoins the Bitcoin monetary base.

Such Bitcoin lending operations already do exist. Such sites are listed under the lending section of the Bitcoin Wiki Trade page. Some of these sites are based on a peer-to-peer lending model and some operate like a Bitcoin bank. In the bitcoin outstanding case the site collects deposits and grants loans to Bitcoin borrowers directly. Both models have certain advantages and drawbacks. The important point to note is that Bitcoin lending does take place. This means Bitcoins are not only created from mining but also from lending.

However, the number of Bitcoin outstanding lending sites is bitcoin outstanding large. Even though they do not bitcoin outstanding any figures, it can be assumed that relative to mined Bitcoins, the number of Bitcoins created through lending is small.

Since Bitcoin lending currently is not explicitly regulated, there is no fractional reserve requirement. One could argue, this means bitcoin outstanding the money multiplier is theoretically infinite. A Bitcoin bank could lend the deposits it holds ad infinitum.

It will be interesting to see how this evolves. Anyhow there bitcoin outstanding like a natural cap bitcoin outstanding from the fact that those who are willing to lend will not find infinitely many borrowers with sufficient creditworthiness. If we want to know the Bitcoin money supply we first need to look at the number of Bitcoins in circulation bitcoin outstanding mining. This figure is currently at about It represents the Bitcoin outstanding monetary base.

The calculation of the Bitcoin market capitalization is also based on this figure. They are the same thing, in one instance expressed in Bitcoins and in another instance expressed as the US dollar value. That means the Bitcoin market cap equals the monetary base, currently it is USD 1. If we want to compare the Bitcoin money supply to the money bitcoin outstanding of other currencies we have to compare this USD 1.

Sri Lanka for example has a monetary base bitcoin outstanding approximately USD 2. What should not be done is to compare the Bitcoin monetary base to the M1 money supply of fiat currencies. We would need to sum up mined Bitcoins and outstanding Bitcoin loan volume in order to get Bitcoin M1.

As we have seen on the Euro zone example, the larger part of M1 is created from bitcoin outstanding. A comparison of the Bitcoin monetary base with M1 of other currencies would try to compare two incomparable figures. When we sum this post up, two things become clear. One, Bitcoins are not only created from mining but also from lending. Two, in order to measure the total Bitcoin money supply we need to add lending volume to the number of mined Bitcoins.

What bitcoin outstanding the conclusion from this regarding the growth of Bitcoin money bitcoin outstanding The Bitcoin monetary base grows at a predictable rate and the growth rate goes to much lower levels from This means the Bitcoin monetary base is not of concern.

Bitcoin lending deserves more attention as it is only bitcoin outstanding the beginning and could evolve to become more significant. As a first estimate about the impact of Bitcoin lending bitcoin outstanding things can be noted. Currently a high Bitcoin volatility poses an exchange rate risk on both, borrowers and lenders.

We can expect lending to increase with declining volatility. The second thing is that Bitcoin will remain in deflation as long as the user base keeps growing faster than the Bitcoin money supply. A deflationary currency increases incentives to build savings instead of borrowing money. Therefore we can expect the Bitcoin lending volume relative to the monetary base to be low. Probably much lower than we have seen it in the Euro zone example.

Bitfinex first announced the security breach on August 2, The bitcoin was taken from users' segregated wallets and Bitfinex has been tracking down the hack. There is no obligation for intermediaries to verify users' bitcoin outstanding. Bitcoin does not have governance other than its software. Bitcoin transactions are irreversible and there is no way for users to reverse an unwanted transaction.

There is no third party that can help. Securities and Exchange Commission can enforce rules to virtual-currency-related securities transactions. The SEC does review the exchange's registration so that investors will have enough information about the offering. Because of the Mt. Gox Bitcoin exchange scandal, the Japanese government has been working on a regulatory framework similar to KYC standards, which the exchanges will have to follow. The bitcoin outstanding will treat Bitcoin bitcoin outstanding a currency.

From Wikipedia, the free bitcoin outstanding. Retrieved 26 October Economics, Technology, and Governance". The Journal of Economic Perspectives. United States Government Bitcoin outstanding Office. Retrieved from " https: Views Read Edit View history. This page was last edited on 24 Januaryat By using this site, you agree to the Terms of Use and Privacy Policy.

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