Thanks again, DeathAndTaxes. That actually makes a lot of sense.

It's kind of odd, though, that he would just arbitrarily pick a tapering-off point, after all the work he put into the rest of the system, isn't it? It's almost like he didn't care about the economics of it, and just wanted to test the soundness of the algorithm for handling transactions.

Thanks for response, DeathAndTaxes.

I understand that there's no reason for the supply to grow indefinitely, but obviously there is a reason for the money supply to grow initially, and that need has to be balanced against inflationary concerns. In other words, enough money has to be created (and dispersed) for the system to be viable, but too much of an increase would devalue the currency, undermining the system.

So my question comes down to this: How was it decided that this particular algorithm was the best way to balance those two competing factors? Was some economic principle applied, or was it just a matter of Nakamoto arbitrarily picking an algorithm that would eventually cause the creation of new bitcoins to peter out?

Thanks again.

Hi,

I'm working on a near-future sci-fi novel where a virtual currency similar to Bitcoin is used, so I've been doing some research on how Bitcoin works. One question I can't find addressed is this:

What is the rationale for the rate of decline in the creation of Bitcoins? That is, what would be wrong with allowing the supply of Bitcoins to increase by, say, 5% per year indefinitely, rather than maxing out at 21 million? It seems like continually creating more Bitcoins would create a greater incentive for users to remain on the network to process transactions as well as removing some of the incentive to hoard.

Apologies if I'm missing something; trying to get a handle on the concepts. Thanks in advance for any feedback.