There will be only 21 million Bitcoins in existence, out of which around 18.5 million have already been mined.
But why are there only 21 million Bitcoins?
Fresh currency is printed every single day all over the world, so why not keep adding to the Bitcoin network as well?
The answer to that question is multi-faceted.
Let’s dive in!
Only 21 Million Bitcoins: Why?
Satoshi Nakamoto set the limit of Bitcoin networks’ source code to 21 million, which is the foundation for this particular cryptocurrency.
The method that was used to come up with this number is still up for debate.
Some say it was an educated guess that factored in many constraints; some suggest it is mathematical serendipity. But we are yet to find out exactly how the anonymous Satoshi came up with the 21 million limits.
Although what we can agree on is that setting a hard-coded cap of 21 million ensured that Bitcoins stay rare and relevant!
It’s a simple case of revisiting a fundamental economic theory: that of supply and demand.
Lower supply of a good or service leads to higher demand. In a competitive marketplace, ceteris paribus, the unit price of said good or service will vary until it settles at a point that ensures economic equilibrium.
Think about it this way:
If Bitcoins were a dime a dozen, they would not have the value that they do now. It’s human nature to want things that are exclusive or exhaustive in nature. Or better yet, a combination of both!
So, yes, the 21 million limit makes Bitcoins that much more desirable to cryptocurrency enthusiasts. Keep reading, and you will find out how the cap of 21M helps Bitcoin.
Value Preservation Over a Decentralized Network
You need to understand that the whole concept of cryptocurrency stands on the foundation of a decentralized form of currency. One that is entirely independent of any third party financial institutions or governmental bodies.
Bitcoins are on the way to becoming an alternative to the traditional banking systems and that comes with its share of pitfalls. As we have witnessed over the years. But if we can mine Bitcoins left and right, then the value associated with them will fluctuate drastically.
Instead, the 21 million limits ensure that the price of Bitcoins will drop steadily until it becomes a fixed value range that will aid in achieving economic equilibrium. So, to provide a stable virtual currency network for the coming years and preserve the value of Bitcoin.
Another factor that kicks in when we talk about Bitcoin’s rarity is, halving.
Bitcoin Halving’s Role
Halving also plays a vital role in keeping Bitcoins relevant and directly correlates with the 21 million limits of Bitcoins. It is the systematic reduction of transactional rewards once every four years.
Back in 2009, when the cutting edge technology behind Bitcoins first came across the world, Bitcoin miners stood to make 50 bitcoin as a block reward.
Which later halved in 2012 to 25 bitcoin and consequently halved again to 12.5 bitcoin in the year 2016. And this action will continue every four years until the last Bitcoin is mined.
The last halving was on May 11, 2020, and Bitcoin miners now stand to earn block rewards of 6.25 bitcoin with each successive addition of transaction blocks.
So, halving increases the rarity of Bitcoins over time, and also increases the cost of Bitcoin mining.
There’s no need to worry about the miners, though! They will continue getting transaction fees even after all 21 million of the Bitcoin statch are in circulation.
Combined with the process of halving once every four years, the 21 million limit makes Bitcoins very desirable inflation hedges.
If you are not familiar with the term, inflation hedges are investments that act as financial buffers in the event of a crisis. They protect you against the negative repercussions of inflation, which is the phenomenon in which the purchasing power of one unit of currency of a country decreases.
This is because Bitcoins, like gold, are not only limited in supply but also untouched by government policies to a large extent.
So, now, let me ask you.
Are you convinced that it was a good idea to set Bitcoin’s limit to 21M for the long run?
And if you’re still disgruntled about the limited availability of Bitcoins, there might be hope for you yet.
There is still a chance for alteration in the Bitcoin network’s protocol to allow for a bigger supply of Bitcoins in the future. But, we probably won’t be around to witness that as experts predict the mining of the last Bitcoin around the year 2140, which is more than a hundred years from now.
[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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