Bitcoin is a deflationary currency. Unlike fiat currencies, which can be printed at will by governments and central banks, the supply of Bitcoin is limited to 21 million coins. This means that as more people adopt and use Bitcoin, the supply becomes more scarce, leading to a rise in value.
In addition to the limited supply, Bitcoin also has a built-in mechanism that reduces the amount of new Bitcoin created over time. This mechanism is called the halving, which occurs approximately every four years. During a halving, the reward that miners receive for validating transactions on the Bitcoin network is cut in half. This reduces the rate at which new Bitcoin is created and contributes to the deflationary nature of the currency.
Overall, Bitcoin’s deflationary nature is one of its key features and is often cited as a reason for its potential as a store of value. However, it also means that there may be some challenges in using Bitcoin as a currency for everyday transactions, as the rising value may incentivize people to hold onto their coins rather than spending them.
