What is scarcity?

Scarcity is a term in economics that refers to something that is finite or limited. As a result, careful consideration is needed when deciding how and what to produce from a limited resource. For example, time and money are characteristically scarce resources alongside land and water.

In the world of cryptocurrencies, Bitcoin is one such example of a scarce resource. As outlined in its whitepaper, the number of Bitcoin in circulation will never exceed 21 million. So, as the supply diminishes and we come closer to that number, the demand for the cryptocurrency will most likely increase. Therefore, Bitcoin’s value is a function of this scarcity.