BTC can go to infinity

Bitcoin (“BTC”) was the first and has been, by most measures, the most successful crypto currency. Starting as a largely academic white paper released by the still to this day unknown Satashi Nakamoto on 31 October 2008, the intellectual basis of BTC seems to me to have been a reaction to the events of the GFC. October 2008 was a tough time. There were valid fears that the global financial system would cease to exist. It didn’t, but it was probably a closer run thing than most people realise.

What was BTC set up to solve? Simply put, it seeks to be an anecdote to fiat money. Without going down the rabbit hole of considering “what is money” let’s just accept for the purposes of this article that since the “Nixon Shock” in 1971, global currencies have been unbacked by anything other than the full faith and credit of the issuing country (prior to 1971, US dollars as a foundation of the Bretton Wood’s agreement were convertible by central banks but not individuals into gold at fixed rates, with other currencies being convertible into US$ and thereby indirectly into gold). Untethered by any requirement that currencies have hard backing (either directly, or indirectly) money printing and hence currency debasement has flourished. Accordingly, since 1971 we have all witnessed global inflation (properly defined) on a scale heretofore unimaginable.

How does BTC seek to solve the problem? In simple terms, BTC seeks to untether money from money-printing by having a fixed base. There will only ever be a maximum 21 million BTC on issue. Since 3 January 2009 when the aforementioned Satashi Nakamoto mined the initial “Genesis block” of BTC, the number of BTC on issue has grown to circa 19.5 million. Each BTC is “mined” by solving complex mathematical algorithms and they will stop at 21 million.

Regardless of your views on crypto generally, it must be accepted that BTC has some attractive properties as a “currency”:

1. It is able to be transferred easily and at low cost (at least electronically);
2. It is “secure” in most senses in that ownership is evidenced by virtue of entries into a blockchain;
3. It is non-perishable (though, see below);
4. It (now) has a reasonably liquid market; and
5. It is (currently) not subject to restrictions, imposts or duties on its ownership.

On that last point though it does need to be acknowledged that crypto generally and BTC particularly is almost perfectly designed for a variety of nefarious activities due to its inherently secret/private structure – there is simply no need for there to be publicly available information on the underlying owners of BTC. Though, in this regard, it’s arguably no different than cash, bearer bonds, physical gold ….. Oh hang on, all of those have been heavily regulated for a variety of anti-money laundering and anti-terrorism funding reasons. Can BTC continue to avoid the heavy hand of regulation?

Now, lest anyone get the idea that I am an advocate for BTC, let me make it very clear; I am not. It probably has a place in the world, though that place is considerably more limited than its promoters will acknowledge. For instance, it is not possible to assert (as BTC’s boosters do) that fiat currencies have nothing behind them and hence that BTC, despite also being backed by nothing, is inherently “better” than fiat, because it is limited and hence cannot be printed. Fiat currencies do after all have something that BTC does not; the ability of the issuing country to levy taxes. Regardless of your valuation of 0’s and 1’s, that is something no crypto can offer. There are a variety of other (occasionally arcane) difficulties that I see with BTC but I shall avoid discussing them lest the comments section come to resemble a public lynching.

But what about the clickbaitish headline; how can BTC go to infinity? Well, as outlined above one of the benefits of BTC is that it is non-perishable in the traditional sense. But is that really the case in a practical sense? Compared to early mediums of exchange like salt, grain etc but also more recent paper currencies it is certainly non-perishable. But is there a risk that the very secrecy, the security, the closed system that BTC is built upon creates its own (digital!) form of perishability?

Currently, it is estimated that approximately 6,000,000 BTC have been “lost”. These are BTC where the owner has lost their ability to deal with the BTC that they own. This could be because they have died (and not passed on details to their beneficiaries), forgotten their passwords, had a backup fail etc etc. And BTC is structured such that if you can’t provide the correct password then those BTC are for all practical purposes lost.

So, since 3 January 2009 we have lost around 6,000,000 BTC; that’s about 400,000 per annum. Assuming that 400,000 BTC continue to be lost per annum (which is arguably conservative in the short term at least; the loss rate is currently estimated to be circa 4% pa and will be increasing due to (a) greater numbers of BTC being on issue and (b) parabolically greater numbers of BTC trades being conducted) then by around 2055 there will be circa 100,000 BTC “available” i.e. 21,000,000 on issue less 20,900,000 that have been lost. And if we lose 99,999 over that year, and the “market cap” of BTC remains constant (okay, that is a stretch – though I am not sure in which direction) then that last BTC would be worth circa AUD$2.1 Trillion / 1 BTC = AUD$2.1 Trillion. Okay not infinity perhaps, but pretty close.

Can’t happen? Why not, 6,000,000 have already been lost. And the very structure of BTC makes it more likely than not that BTC will continue to be lost – just like real currency actually (the RBA estimates 5-9% of bank notes in circulation have been ‘lost, destroyed, forgotten or sitting in numismatic currency collections” as of June 2023 – and that’s for a currency in active physical use and with a growing amount on issue).

Perhaps, the last few BTC will be the world’s first rare digital coins? Perhaps, there will be a collector value for them like there is for other obsolete coins such as ancient Greek and Roman coins, the 723 Umayyad Gold Dinar, or a 1343 Edward III Florin? Who knows, perhaps we’ll see it on a future version of ‘Digital Antiques Roadshow’?

A final thought. After the 1974 floods in Ipswich, Queensland I recall family tales of my Great Grandmother returning to her flood ravaged home and finding lots and lots of Australian Pound denominated notes stuck to the walls. Australia had converted to a decimal currency system in 1966 however apparently my deceased Great Grandfather had failed to tell anyone of the notes that he had been “saving” under the linoleum. Unfortunately for lost BTC, I can’t see that even a flood is going to provide access to them.