What is the Token Economics of Bitcoin?
This post covers the issuance, emission, and utility of Bitcoin (BTC).
Token economics (tokenomics) studies the design and implementation of blockchain-based tokens. Understanding token economics is crucial for anyone considering investing in or using a particular token.
This post covers the issuance, emission, and utility of Bitcoin (BTC).
1. Issuance
Token issuance is the creation and distribution of tokens as part of a specific event or offering e.g. airdrop, ICO, reverse ICO, IEO, IDO, DAICO, ETO, STO, and SAFT.
The first bitcoins were created on January 3, 2009, by mining the genesis block. Due to its design, the 50 bitcoins created in the first block (called Block Zero or genesis block) are unspendable.
2. Emission
Token emission is the ongoing process of creating and releasing new tokens into circulation e.g. through mining or staking.
Bitcoin is a deflationary token with decreasing emissions and a hard cap of 21 million.
When the Bitcoin blockchain started in 2009, new bitcoins were created at the rate of 50 per block. On average, a new block is mined in 10 minutes. Interestingly, the second Bitcoin block came 6 days after the first!
The rate at which new bitcoins are created halves every 210,000 blocks or approximately every 4 years. So far there have been 3 halvings:
November 2012: 50 to 25
July 2016: 25 to 12.5
May 2020: 12.5 to 6.25
Halvings are expected to continue till the year 2140 AD by when the total number of bitcoins will be 21 million and no new bitcoins will be created.
3. Utility
Token utility covers the usefulness and utility of a token.
Here are some of the use cases of Bitcoin:
Payment of fees for transactions on the Bitcoin network.
Peer-to-peer payments. This is also facilitated by solutions like the Lightning network.
Digital currency for online marketplaces.
Settlement layer for cryptocurrency exchanges.
Capital-raising mechanism. Did you know that Ethereum’s ICO raised funds in Bitcoin?
A highly speculative store of value.
Legal tender in El Salvador.
Illegal activities like money laundering, ransomware payments, and darknet markets.