Scarcity

Scarcity is the property of being limited in supply relative to demand, and it is the foundation of monetary value. All the gold ever mined, over 200,000 tonnes, would form a cube only about 22 meters per side. Bitcoin is scarcer still in kind: its supply is capped at exactly 21 million coins, a limit enforced by software rather than geology.

Why it matters

Money without scarcity fails, because whoever can produce it cheaply will do so until its value collapses. This is the story of every debased coinage and overprinted currency, and it is why monetary goods throughout history have been items that were hard to make: gold, silver, rare shells and beads in their local contexts. Scarcity alone is not sufficient, since plenty of rare things have no demand, but it is necessary. The critical distinction is between scarcity that responds to price, as with commodities whose production ramps when prices rise, and scarcity that cannot respond at all.

In the gold vs bitcoin debate

The two assets embody different grades of scarcity. Gold is scarce but not fixed: mine output adds roughly 1.5 to 2 percent to the stock each year, higher prices stimulate more production, and undiscovered deposits, deep-sea and extraterrestrial sources remain open questions for the far future. Bitcoin introduced absolute scarcity, a supply that no price, technology, or authority can expand, something no physical substance can offer. Gold's reply is that its scarcity has been tested by every incentive humans could throw at it for five thousand years, while bitcoin's rests on continued consensus around its rules.