When the founder of Bitcoin Satoshi launched the cryptocurrency he set a hard limit of 21 million Bitcoin. This limit is enforced by code and upheld by all participants in the network.
To this day this has not changed and remains one of the key tenants of Bitcoin’s success. But you may be wondering. Why does Bitcoin have this limit?
Don’t worry. In this article, I will be answering that question and much more. So without further ado, let’s jump right in.
Why does Bitcoin have a limited supply?
Bitcoin has a fixed supply to enforce scarcity. Ultimately, without a cap of 21 million the value of Bitcoin would gradually decrease over time if all else is equal.
This is because the supply would diltute over time. However, with a hard cap the supply is static, and therefore if the demand increases so will the price.
Ultimately, the current ethos of Bitcoin is one of being a store of value. To fulfill this promise it must maintain its purchasing power over time.
What happens when Bitcoin runs out of supply?
When Bitcoin runs out of supply miners will no longer be rewarded with new Bitcoin issued for verifying transactions. Instead, they are compensated via transaction fees.
Moreover, at this point it is likely Bitcoin will become deflationary. This is because there will be a gradual increase in lost Bitcoin over time and therefore the total supply will decrease.
As a result, the asset will become increasingly scarce and will likely increase in price provided the demand remains constant or increases.
Is it possible to increase the supply of Bitcoin?
It is certainly possible to increase the supply of Bitcoin. However, it would require several actors to reach an agreement. Firstly, it would require developers to write and propose this change.
Secondly, it would require the majority of computers in the network to agree on this proposal. In other words, tens of thousands of miners and nodes would have to signal their support.
If successful a hard fork would occur whereby the original network and the new network diverge into two separate protocols.
That being said, there are strong incentives to keep the hard cap at 21 million. Although it may increase the total mining rewards denominated in Bitcoin it would also destroy the overall value of the network when compared to other assets such as the US dollar.
After all, Bitcoin’s scarcity is a key thesis for the network. If it is removed investors will ultimately lose confidence.
How many Bitcoins are left?
At the time of writing the circulating supply of Bitcoin is 19.2 million. Therefore, there is 1.8 million Bitcoin left to be mined. This Bitcoin will be steadily introduced into the circulating supply every 10 minutes.
After every 210,000 blocks, the inflation is reduced by 50%. This happens roughly every 4 years. Once the 21 million Bitcoin are mined no more Bitcoin will be issued. The last Bitcoin will be mined in 2140.
Will the number of Bitcoin ever reach 21 million?
The number of Bitcoin will never reach 21 million due to two factors. Firstly, it uses bit-shift operators. When rewards are calculated the lowest unit of account known as Satoshi is rounded down.
Secondly, a significant portion of the supply is lost. According to a report published by Glassnode, an estimated 10% of the total Bitcoin supply has been lost. Other estimates are as high as 20%.
After all, Satoshi mined over 1 million Bitcoin himself and they have remained dormant for over 10 years. Not to mention, countless users have lost access to their private keys. Private keys act as passwords for users’ funds and if lost they ultimately lose access to their Bitcoin.
One notable example is James Howells discarding his laptop back in 2013. It contained his private key which granted access to a wallet containing 8000 Bitcoin. There are countless other examples and this will only continue.
Therefore, when taking these factors into account the 10% estimation by Glassnode is probable.
If you want to view this article in a more visual format then please check out my video below:
Conclusion
As you can see, the 21 million hard cap of Bitcoin is needed to ensure scarcity. This scarcity allows Bitcoin to maintain its purchasing power by eliminating inflation.
Therefore, network participants are incentives to keep this limit. This scarcity ultimately makes it an extremely desirable asset that increases in value over time.
I hope you found this article useful and thanks for reading it. Want to know why Bitcoin is banned in some countries? Click here to read my previous article.
