The Economics of Bitcoin



Economics of Bitcoin

Bitcoin is a form of digital currency, run with many complex formulas, and supported by even more complicated economic concepts and principles. To break some of these down, Blockchain editor Kiran Vaidya explains some of this in his article titled “Economics of Bitcoin.” Vaidya begins the article explaining a few basic principles of our dollar, such as the ideas of centralization and inflation. He then takes the reader a bit beneath the surface, explaining some unrecognized flaws in our current systems, such as potential human error, which is much more of a looming threat than most choose to realize.

After a brief synopsis of the dollar’s basic economic principles, he follows the introductions of these issues with his introduction of Bitcoin. He explains that Bitcoin is produced at a pre-programmed rate, and that it will eventually no longer be produced, leading into his explanation of the deflationary concept. Comparing Bitcoin’s capabilities in comparison to the flaws of solidified currency while introducing factual rebuttals to common misconceptions about Bitcoin, Vaidya’s article is truly well-written, and makes the complicated topic much less foggy and confusing.

Bitcoin tends to be labeled as a very controversial form of currency: At least, it is to those who don’t understand it. By nature, people are reluctant to doubt something that they don’t understand. For that reason, I greatly appreciate about Vaidya’s article is that it clarifies the basics and roots of Bitcoin’s functions as a technology and then takes a deeper dive into its economics. This allows the reader to have a solid understanding prior to explaining the details of its economic position, and helps to elucidate the biggest differences between Bitcoin and currency as we know it today.

When left unexplained, Bitcoin does seem, well, sketchy. One instinctual question people may have is wondering who is, in fact, “in charge” of it? The fact that Bitcoin is decentralized, unlike other forms of currency, can be confusing, since the answer to that question is nobody. Bitcoin is “controlled,” by a pre-programmed, un-editable machine, which leaves no room for human error, which has been the primary cause of many past financial crises. Since humans, (including the government), can’t control its production rates or which humans possess how much, Bitcoin is completely free of any corruption or bias in it’s systems, a trait in which no solid forms of currency could ever possibly share.

As Vaidya explains in the article, the concept of inflation versus deflation is important to think about when considering Bitcoin’s economics. One conflict of the solidified money that we use today is that it is practically printed out of “thin air,” with no statistical or mathematical confirmation that every bill printed will positively affect our country’s economics. This concept of being able to be printed out of “thin air” makes our currency inflationary, meaning since more can always be created, it could easily lose it’s value. Bitcoin, on the other hand, is the opposite.

Without getting into complex formulas, it can be simply put that there is only so much Bitcoin, preventing any chance of inflation. The main argument about deflation is, while inflation inconveniences people by making them haul more dollar bills around, deflation instead makes people more reluctant to purchase things, since you can only divide a dollar so much. However, Bitcoin also manages to avert itself from this problem, as in the scenario of potential deflation, Bitcoin, (unlike solidified currency), can be infinitely divided and still hold some sentient value. Though it is easier to conceptualize potential issues with Bitcoin, such as the concepts of deflation, small amounts of research, (such as articles like Vaidya’s), can help make such a complex topic as Bitcoin less intimidating, and show the true benefits that cryptocurrency holds for a bright future in economics.


Vaidya, Kiran. “Economics of Bitcoin – All Things Ledger – Medium.” Medium.com, Medium, 11 Dec. 2018, medium.com/all-things-ledger/economics-of-bitcoin-fc4e1fd46864.


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