Originally published on Medium · November 18, 2019
Somewhere between Mars and Jupiter, an asteroid called 16 Psyche drifts through the solar system. Scientists estimate that it contains iron, nickel, and precious metals worth approximately $700 quintillion — a number so large that it is essentially impossible to visualize. If it were ever mined and brought to Earth, the world's gold and silver markets would not be enriched. They would be destroyed.
This is not a new problem. Adam Smith identified the same dynamic in the eighteenth century, and his analysis illuminates something important about why Bitcoin is designed the way it is.
What Adam Smith Understood About Scarcity
In The Wealth of Nations, Smith observed that the discovery of abundant gold and silver deposits in the Americas "reduced the value of gold and silver in Europe to about a third" of what it had been. The influx of New World precious metals did not make Europeans proportionally wealthier — it simply diluted the value of the metal they already held. Supply increased; value fell.
The lesson is straightforward but underappreciated: the value of a monetary asset is not fixed by its physical properties alone. It is a function of supply relative to demand. When supply expands unexpectedly, the value held by existing owners erodes — not because of anything they did, but because of a discovery or decision made by someone else entirely.
Gold has served as money for roughly six thousand years, in part because mining it is difficult and expensive. New supply enters circulation slowly. But "slowly" is not the same as "predictably," and it is certainly not the same as "never." Gold's supply is ultimately subject to whatever geological fortune — or asteroid — comes along.
Bitcoin's Answer
Satoshi Nakamoto designed Bitcoin with this problem in mind. The supply of Bitcoin is not merely limited — it is mathematically fixed and publicly known. There will never be more than 21 million Bitcoin. The schedule by which new Bitcoin enters circulation is determined by code that has operated transparently since 2009: the block reward halves approximately every four years, slowing the rate of new issuance until the last Bitcoin is mined sometime around the year 2140.
No government can decide to print more. No mining company can discover a new deposit. No asteroid can change the math. The supply schedule is not a policy choice that future administrators can reverse — it is a protocol rule enforced by every participant in the network simultaneously.
This is what "predictable scarcity" means. And it is a property that no monetary asset before Bitcoin has ever possessed.
Why It Matters
The comparison to gold is useful because gold is the closest historical analogue to Bitcoin as a store of value. Gold's scarcity has made it a reasonable monetary asset for millennia. But gold's scarcity is geological — real but ultimately contingent on what the universe has hidden from us. Bitcoin's scarcity is mathematical — fixed, verifiable, and immune to discovery.
Consider what 16 Psyche represents in this context. If the technology to mine and transport asteroids ever became economically viable, the gold standard — or any precious metal standard — would be catastrophically vulnerable. The value of every gold holding on Earth would be at the mercy of whoever controlled the asteroid mining operations. There is no equivalent threat to Bitcoin's supply schedule. The code does not care about asteroids.
This is not an argument that Bitcoin is without risk, or that its price is stable, or that adoption is inevitable. It is an argument that Bitcoin solves a specific and underappreciated problem that every previous form of commodity money has left unaddressed: the possibility that supply will expand in ways that no one predicted and no one consented to.
Adam Smith's Implicit Question
Smith could not have imagined Bitcoin — he died more than two centuries before Nakamoto published the whitepaper. But his analysis of money, value, and the consequences of unexpected supply expansion implies a question that took until 2009 to answer: is there a form of money whose scarcity is genuinely predictable?
For the first time in history, the answer appears to be yes. Whether that answer proves durable — whether the Bitcoin experiment succeeds over the long arc of economic history — remains to be seen. But the problem it addresses is real, it is old, and Adam Smith understood it perfectly.