Bitcoin’s total supply is limited to 21 million coins. This hard cap was set by Bitcoin’s anonymous creator, Satoshi Nakamoto, when the digital currency was first launched in 2009. The limited supply is one of Bitcoin’s defining features and underpins many of its economic characteristics. But why was 21 million chosen as the ultimate supply limit for Bitcoin? There are several theories behind this design choice.
Scarcity
One of the main reasons for Bitcoin’s limited supply is to create scarcity. Bitcoin mimics the scarcity properties of precious metals like gold. By capping the amount that will ever exist, it makes each bitcoin more rare and valuable over time as demand grows. Having a finite supply is intended to incentivize people to treat bitcoins as a scarce digital asset worth accumulating, rather than spending frivolously. The more scarce an asset is, the higher its value.
Inflation Resistance
A capped supply also makes Bitcoin resistant to inflation. Traditional fiat currencies like the U.S. dollar have unlimited supply, meaning central banks can print new money endlessly. This leads to inflation when the money supply grows faster than the economy. With Bitcoin, there is no central authority that can produce more bitcoins on demand. The code strictly limits new coin creation to a fixed schedule over time. This prevents the coin’s purchasing power from being eroded over time by inflation.
Fair Distribution
The 21 million supply cap helps ensure coins are distributed fairly over Bitcoin’s lifespan through a predictable issuance schedule. New bitcoins enter circulation as block rewards when miners successfully validate new blocks of transactions. The block reward amount decreases by 50% every 4 years, until mining ends completely around the year 2140. This gradual reduction in issuance rate means the supply expands slowly and predictably, allowing the market to properly value the coins over time.
Bitcoin’s Monetary Policy
To understand the 21 million cap, it helps to understand Bitcoin’s monetary policy and how new bitcoins come into existence. Bitcoin’s supply schedule is controlled by code that outlines how quickly new coins can be mined:
New Bitcoins Are Issued as Block Rewards
When Bitcoin miners validate new blocks of transactions, they receive newly created bitcoins as a reward. This is the only way new bitcoins come into circulation – there is no other mechanism to create new coins. These block rewards are designed to incentivize miners to secure the network.
The Block Reward Amount Decreases Over Time
When Bitcoin first launched, the block reward was 50 BTC per block. But the reward amount is cut in half every 210,000 blocks, or roughly every 4 years. This event is called the “Bitcoin halving”. The last halving occurred in 2020, reducing the block reward to 6.25 BTC. The next halving is expected around 2024. Over time, the diminishing block reward ensures a predictable, limited supply of new bitcoins trickles into the system.
Block Rewards End Completely Around 2140
Bitcoin’s code specifies there will only ever be 64 halving events, after which no more bitcoins will be issued. Based on Bitcoin’s block interval of 10 minutes, it’s estimated the final coins will be mined around the year 2140. At that point, the total supply will be permanently capped at 21 million. Miners will only earn transaction fees rather than block rewards.
The Choice of 21 Million
So why was 21 million chosen as the exact number of bitcoins to be created? Here are some key considerations that may have motivated Satoshi’s decision:
Large Enough Supply for Worldwide Use
There needed to be enough whole bitcoins for the currency to be usable globally for payments and transactions. If the supply was too small, it would limit Bitcoin’s use for day-to-day purchases. At the same time, the founder didn’t want to make the supply overly large, which would dilute its scarcity. 21 million was likely seen as a happy medium – large enough for widespread use, but scarce enough to establish value.
Power of 2 Number for Technical Reasons
From a technical perspective, the 21 million figure has the advantage of being expressible as a power of two (2^21). Many aspects of Bitcoin’s code utilize powers of two, so it made sense to pick a supply limit that was a power of two for consistency. This allows for simpler software implementation and cleaner divisions of satoshis (the smallest units of a bitcoin).
Low Inflation Rate even with Lost Coins
Over time, some bitcoins will inevitably be lost due to people losing their private keys or sending coins to unusable addresses. It’s estimated millions of bitcoins could be lost forever. Having 21 million as the cap provides a cushion so that losing a certain percentage of coins will not lead to high inflation from restricted supply. The ample cushion helps maintain Bitcoin’s inflation-resistant properties.
Gradual Release of Coins
The 21 million figure allowed for coins to be gradually introduced via predictable block reward halvings, rather than all being available immediately. This gives the market time to properly value the coins as the supply expands. If all 21 million coins existed from day one, it could have led to wild swings in Bitcoin’s early value. A smooth issuance curve prevents shocks to the system.
Alignment with Gold Supply
Some reference the existing global supply of mined gold (around 21 million kilograms at the time) as a clue to Satoshi’s thought process. Choosing an end supply close to gold’s natural scarcity reinforces Bitcoin’s analogies to the precious metal. This helps position Bitcoin as “digital gold” – a scarce digital asset with similar supply dynamics to a scarce physical commodity.
Will the Supply Cap Ever Increase?
The 21 million supply cap is hardcoded into Bitcoin’s protocol and cannot be altered easily. Changing it would require convincing the entire bitcoin network to adopt a protocol update package that modifies the supply schedule. Here are some reasons why the cap is highly unlikely to change:
Requires Network Consensus
There is no central party that can unilaterally change Bitcoin’s supply limit. The cap can only be increased if the vast majority of decentralized nodes/miners adopt a protocol update with modified rules. Achieving this level of consensus in a decentralized network is extremely difficult.
Going Against Original Vision
Increasing supply would go against the original vision of Bitcoin as laid out in Satoshi Nakamoto’s whitepaper. It would sacrifice the attributes of scarcity and inflation resistance that were purposefully built into its economic model.
Loss of Confidence and Value
Modifying the supply cap would significantly undermine confidence in Bitcoin. The immutable monetary policy is critical to its value proposition. Investors and users would likely abandon Bitcoin if its 21 million cap proved mutable.
Alternate Cryptocurrencies Exist
There are already thousands of altcoins with flexible supply models. A bitcoin supply change would likely drive users to these alternatives rather than achieve network consensus. Bitcoin holders have little incentive to modify the cap when alternate options exist.
Mining Industry Opposition
Miners would likely strongly oppose any attempt to lift the supply limit, since it would reduce their future block reward income once all coins are created. Miners are a critical backbone of the network, so their opposition makes consensus very difficult.
Could a Bug or Exploit Change the Supply?
While incredibly unlikely, technically there are fringe scenarios where a software bug or exploit could lead to extra coins being produced beyond the 21 million limit:
Undiscovered Protocol Flaws
A currently unknown flaw in Bitcoin’s cryptography or consensus rules could allow new coins to be created under certain conditions. These kinds of fundamental protocol flaws are practically impossible, but can’t be completely ruled out.
51% Attack
A malicious entity that gains control of 51% of the Bitcoin network’s hash power could override transaction rules to mint new coins or double spend. However, the massive computing power required makes a sustained 51% attack infeasible in practice.
Hyperinflation Bug
In 2010, an exploit was successfully used on multiple altcoins to artificially rapidly increase supplies by many orders of magnitude (“hyperinflation bug”). This type of bug exploitation is not realistically possible on Bitcoin today due to widespread fixes and network protections.
Severe Software Bug
A major undiscovered software vulnerability could allow an attacker to coerce nodes into accepting invalid blocks that wrongly increase supply. This would require a perfect storm of a severe bug plus lack of developer/miner patching.
In all these scenarios, the community would likely band together to hard fork the blockchain to reverse any improper coins created above 21 million. The incentives strongly favor upholding the supply limit, so it’s highly unlikely to ever be breached permanently.
Table: Bitcoin’s Supply Schedule
| Block Reward Era | Block Reward | Blocks | Ending Supply |
|---|---|---|---|
| Genesis (2009) | 50 BTC | 0 | 0 |
| First Era | 50 BTC | 210,000 | 10,500,000 |
| Second Era | 25 BTC | 420,000 | 15,750,000 |
| Third Era | 12.5 BTC | 630,000 | 18,375,000 |
| Fourth Era | 6.25 BTC | 840,000 | 20,475,000 |
| Fifth Era (Future) | 3.125 BTC | 1,050,000 | 21,000,000 |
This table summarizes Bitcoin’s supply schedule and block reward eras over time. The schedule is controlled by code that predetermines how many coins can be minted as each block on the chain is mined. As shown, the coins are released gradually over many decades until the maximum 21 million supply cap is reached.
Frequently Asked Questions
Why is Bitcoin’s supply limited?
The limited 21 million supply creates scarcity that makes bitcoins appreciate in value over time, and makes the system resistant to inflation. It also ensures fair distribution through a predictable schedule.
Can Bitcoin’s supply limit be changed?
It is highly improbable that Bitcoin’s supply cap will ever be changed, since it would require network-wide consensus and go against the core principles of Bitcoin.
What happens when 21 million coins are mined?
Once 21 million bitcoins have been issued through block rewards, miners will rely on transaction fees for revenue rather than new coins. The network will continue to function smoothly.
Does lost bitcoin affect the 21 million limit?
No, lost or destroyed bitcoins do not affect the supply limit. The 21 million maximum coins exist in the system regardless of whether they are in use or not.
How many bitcoins exist already?
As of October 2023, approximately 19 million bitcoins have been mined, with about 2 million left to mine until the supply cap is reached around 2140.
Conclusion
Bitcoin’s total supply is capped at 21 million coins based on the economic model defined in Satoshi Nakamoto’s original whitepaper. This hard limit ensures the coin’s scarcity cannot be inflated away, and encourages long-term value accrual. While the supply limit could theoretically be raised with network consensus, this is highly unlikely to occur, preserving Bitcoin’s role as the pioneering scarce digital asset. The predetermined issuance schedule and final cap are core components of Bitcoin’s identity.
