"Because of the law of supply and demand, when fewer bitcoins are
available the ones that are left will be in higher demand, and therefore
will have a higher value. So, as Bitcoins are lost, the remaining
bitcoins will eventually increase in value to compensate. As the value
of a bitcoin increases, the number of bitcoins required to purchase an
item decreases. This is a deflationary economic model. As the average
transaction size reduces, transactions will probably be denominated in
sub-units of a bitcoin such as millibitcoins ("Millies") or
microbitcoins ("Mikes").
The Bitcoin protocol uses a base unit of one hundred-millionth of a
Bitcoin ("a Satoshi"), but unused bits are available in the protocol
fields that could be used to denote even smaller subdivisions. " -- From the bitcoin wiki FAQ
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