Bitcoin as a currency was modeled after gold, because gold has the longest and most successful track record of any currency. The idea was to create, in essence, digital gold.
Gold’s popularity is not coincidental; it has specific properties which make it useful as a currency. Most importantly, gold is a scarce resource. There is a finite amount of gold in the world, and the supply does not arbitrarily increase. Nobody can declare that more gold exists by law; the supply is not determined by any individual or group. Also, gold is difficult to extract from the ground, which means we can predict with reasonable accuracy what the future supply will be at any given time.
Bitcoin, too, is scarce. Only a finite amount will ever exist: twen-ty-one million bitcoins total, each of which is divisible down to one-hundred-millionth of a bitcoin.
Scarcity is especially unique in the digital world. With almost any piece of digital data, we can copy and paste, creating as many exact duplicates as we like. But being able to copy and paste digital money would be a catastrophe – everybody could become their own printing press. For reasons I will explain in a minute, you cannot copy and paste bitcoins. The supply is determined by mathematics and soft-ware, not by any individual or group.
The rate at which bitcoins are created is also predictable. The supply is based on a mathematical algorithm which regulates its own production at a pre-determined rate. We can estimate to a very precise degree how many bitcoins will exist at any given time. This solves the problem of arbitrary inflation – a recurring flaw with currencies issued by a central group.
Bitcoin mirrors gold in some ways and improves on it in others. While gold has been successful as a currency, it has some drawbacks. For one thing, it’s clunky. Try paying for a pack of gum in gold shavings, or for a house in gold bricks. Even worse, try using gold for international business or on the internet. The idea of shipping physical metal through the mail to trade internationally seems archaic, and you can’t transmit gold bits through a phone line.
Portability is one area which bitcoin greatly outperforms gold. Because bitcoin is digital, you can send it to anybody on the planet with an internet connection, instantly, for virtually no cost. This is possible because of the special way in which the blockchain and currency relate to each other.