Bitcoin and inflationDoes bitcoin have inflation too?

• Bitcoin does have inflation, but it is laid down in the code in detail, in advance.
• The maximum is 21 million bitcoin, and there will never be more. That is mathematically fixed, not politically decided.
• Issuance halves roughly every four years. At the moment 3.125 new bitcoin are added per block. At the next halving that becomes 1.5625, and so on until around 2140.
• The euro and gold have no hard limit and their inflation is far harder to predict.

In the rest of this article we look at how this works exactly and what it means in practice.

Inflation means that prices rise. So with the same amount of money you can buy less than you could a year ago. That is why inflation is also called currency debasement: your money is literally worth less and your purchasing power falls.

Inflation often arises because more money comes into circulation. That form is called monetary inflation. In Europe, the European Central Bank (ECB) is responsible for printing more euros. The ECB aims for price inflation of around 2% per year. Exactly how many new euros are added to reach that target is not clear in advance, and often not afterwards either.

You can also get inflation through scarcity: a raw material that suddenly runs out, a war, a pandemic or a natural disaster. That falls under price inflation. In this article we look mainly at the monetary side: how much new money is added, and how transparent is that process?

Bitcoin has monetary inflation too: new bitcoins are added every ten minutes. The difference with the euro is that this process is fully fixed.

Predictable. Roughly every four years, issuance is halved. It went from 50 → 25 → 12.5 → 6.25 → 3.125 bitcoin per block. We are now at 3.125. At the next halving, expected in the spring of 2028, that becomes 1.5625. The last fragment of a bitcoin will be issued around the year 2140.

Transparent. Anyone can look up how many bitcoins are in circulation now, how many are still to come, and what the exact halving dates are. The code is public; the source code literally contains the line Consensus.nSubsidyHalvingInterval = 210000, meaning the reward halves every 210,000 blocks (≈ four years).

Based on those rules it can be calculated that there will never be more than 21 million bitcoin. That ceiling is mathematically hard. No central bank, government or majority can tamper with it unless the majority of the network approves, which in practice does not happen.

Bitcoin works in two movements. The total number of bitcoins rises quickly at first and then bends towards the limit of 21 million. Annual inflation falls step by step: in the very first block it was even 100%, because 50 new coins were added each time to a zero supply. Every halving is a jump downwards.

What you do not see in the figures: a society that can plan around these rules. Investors, developers and companies know in advance what issuance is going to do. That is exactly what sets bitcoin apart from classic money.

Like bitcoin, gold has a declining inflation rate: some 2,500 to 3,000 tonnes of new gold are found each year, and in percentage terms that is an ever smaller share of the existing supply.

But there are three important differences:

• The supply is not fixed. Nobody knows how much gold is still underground. Estimates can be well off the mark.
• Extraction is not predictable. A new discovery, a mining strike or a political crisis can change annual production considerably.
• The market can be steered. Mining companies can scale back production to protect the price. Central banks hold large reserves and can suddenly sell them.

With bitcoin that is not possible: the issuance rhythm is fixed in the code and nobody can decide on their own to "mine a bit extra".

For the euro the story is more complex still. There is no ceiling on the total number of euros. In principle the ECB can bring unlimited new money into circulation, or let it be created through the balance sheets of banks.

Exactly how large that expansion is depends on the policy of a handful of governors. That is where the fundamental weakness lies: monetary inflation of the euro is largely a political choice. During a crisis (think of 2008, or the corona period in 2020-2022) the money supply can rise by tens of percent in a short time.

That is not necessarily a bad thing. A central bank can cushion a crisis with monetary measures. But it does make the system unpredictable, and in the longer term it undermines the purchasing power of those who keep their wealth in cash.

Bitcoin is designed as a digital, more predictable variant of gold. For anyone who wants to protect their wealth against unexpected inflation, bitcoin can be an interesting addition to your assets, alongside shares, property or physical gold, for example.

A few things to keep in mind:

• Bitcoin fluctuates strongly. Predictable issuance says nothing about the price in the short term. Count on sizeable price swings.
• Scarcity works over the long term. That 21 million ceiling mainly does its work over years to decades, not over weeks.
• Spread your risk. As with any investment, it is wise to combine bitcoin with other assets.

If you want to start, you can build a first position from 30 euros. So you do not have to buy a whole bitcoin straight away.