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Why can only 21 million Bitcoin be mined?

Bitcoin is a decentralized digital currency that was created in 2009 by an unknown person or group using the name Satoshi Nakamoto. Unlike traditional fiat currencies like the U.S. dollar or Euro, Bitcoin is not controlled by any central authority such as a central bank or government. Instead, Bitcoin operates on open source software and is powered by a distributed global network of computers.

One of the key features of Bitcoin is that only 21 million bitcoins can ever be created or “mined”. This hard cap on the total supply is hard coded into Bitcoin’s software and helps provide Bitcoin with its scarcity value. Let’s take a closer look at why this limit exists and the implications it has for Bitcoin’s supply and demand economics.

Why is there a limit of 21 million Bitcoins?

When Satoshi Nakamoto created Bitcoin, one of their main objectives was to create a form of money with a predictable and finite supply. Satoshi was concerned about how central banks around the world were recklessly printing money and devaluing fiat currencies through inflation. They wanted to create a currency with deflationary properties more similar to scarce assets like gold.

By capping the total supply at 21 million Bitcoins, Satoshi knew that over time, as demand for Bitcoin grew, the value of each individual bitcoin would have to appreciate as well due to supply and demand economics. There would never be a risk of the currency being debased through excessive production.

Characteristics of having a limited supply

Here are some of the key characteristics and implications of Bitcoin having a limited supply cap:

  • Predictable and finite issuance rate – The rate of new bitcoin creation and supply is known well in advance.
  • Provides scarcity value – Scarcity leads to appreciation if demand grows while supplies remain the same.
  • Inelastic supply – Supply cannot be inflated regardless of demand. This is different than fiat which can be printed at will by central banks.
  • Deflationary – The buying power of each bitcoin is likely to increase over time as demand grows relative to the limited supply.
  • Allows for portability – Bitcoin’s finite supply means holders can easily transport large amounts of wealth without devaluing the underlying asset.

How new Bitcoins enter circulation

So if there can only ever be 21 million Bitcoins, how do new bitcoins come into circulation and add to the overall supply?

New bitcoins are minted through a process called bitcoin mining. Bitcoin mining involves computers competing to solve extremely complex math problems in order to validate transactions on the Bitcoin network. Whoever successfully solves one of these problems first is rewarded with newly minted bitcoin.

This mining process is designed to be resource intensive, requiring large amounts of computing power. Making new bitcoins takes real-world resources and energy, ensuring that the supply cannot be inflated arbitrarily.

Controlling Bitcoin’s supply through mining

The Bitcoin protocol controls the total supply by controlling the pace and amount of bitcoin rewards that miners receive. Here is how it works:

  • The mining reward began at 50 bitcoins per block when mining first began.
  • The reward is cut in half every 210,000 blocks which occurs approximately every 4 years.
  • The reward size will continue decreasing in this halfing pattern until mining rewards cease completely when the 21 million supply cap is reached, estimated to be around the year 2140.

This predictable reduction in mining rewards over time means the total bitcoin supply increases gradually and slowly approaches the 21 million ceiling built into the Bitcoin protocol.

Bitcoin mining rewards schedule

Block Number Range Reward Per Block
1 – 210,000 50 BTC
210,001 – 420,000 25 BTC
420,001 – 630,000 12.5 BTC
630,001 – 840,000 6.25 BTC

This reduction in mining rewards will continue in this pattern until the supply cap is reached.

Current status of Bitcoin’s supply

Now that you understand how new bitcoins are created and enter into circulation, let’s take a look at some stats on Bitcoin’s current supply status:

  • There are currently around 19 million bitcoins that have been minted into circulation.
  • This means there are around 2 million bitcoins left to be mined until the 21 million cap is reached.
  • At the current block reward of 6.25 BTC per block, the remaining bitcoins will be mined in approximately 120 years, around the year 2140.
  • The block reward has gone through 3 halving cycles so far, cutting down from an initial 50 BTC per block.

The next block reward halving event is estimated to occur in 2024, reducing the block reward to 3.125 BTC per block going forward.

Bitcoin supply data

Total supply cap 21,000,000 BTC
Bitcoins in circulation 19,000,000 BTC
Remaining bitcoins left to be mined 2,000,000 BTC
Current block reward 6.25 BTC
Next block reward halving estimate 2024

Implications of a limited supply

Bitcoin’s limited supply has some profound implications for its value proposition and ability to serve as an inflation-resistant value storage mechanism. Here are some of the key potential outcomes:

Appreciation and deflation

With a capped supply and growing demand over time, basic economic theory suggests that the value of bitcoin will continue appreciating. The buying power of bitcoin is likely to be much higher in the future if adoption continues growing.

Increased scarcity

As the remaining bitcoins become harder and harder to mine, the scarcity of bitcoin in circulation will continue increasing over time. This scarcity adds to bitcoin’s appeal as a store of value.

Lower, more predictable inflation

With no supply shocks possible due to fixed supply, the inflation rate of bitcoin is expected to be lower and more predictable compared to fiat currencies with flexible monetary policies.

Transition to fee model

As bitcoin block rewards decrease over time, transaction fees will play an increasing role in incentivizing miners to secure the network and process transactions.

Conclusion

In summary, Bitcoin’s supply was intentionally capped at 21 million bitcoins by Satoshi Nakamoto to provide a deflationary counterbalance to government controlled fiat currencies. The path towards this fixed supply cap is controlled through bitcoin’s mining rewards mechanism. With a known and finite supply, and growing demand over time, bitcoin is engineered to appreciate in value which should help incentivize mining and support network security even without block rewards.