One of the key characteristics of Bitcoin (BTC) is its limited coin supply. Bitcoin inventor Satoshi Nakamoto designed the cryptocurrency with a 21 million cap to limit its supply and prevent inflation. As its scarcity increases over time, so does its demand, which ultimately makes the Bitcoin price go up.
It has been talked about a lot especially with the April 2024 halving event, but what exactly is it? This articles takes gives you a deeper look at the 21 million cap and what it means for the cryptocurrency platform.
About the Bitcoin Hard Cap
The Bitcoin hard cap is the maximum number of Bitcoins that can ever be created. It’s reached through the halving process which involves cutting in half the reward for mining new blocks approximately every four years. As a result, the rate of creating new Bitcoin is reduced until the limit is reached. By 2140, it is estimated that the last Bitcoin will have been issued, bringing the supply total to 21 million.
Why 21 Million?
Initially, Satoshi didn’t reveal the reasons behind this decision. However, an email exchange with a Bitcoin contributor discloses the rationale behind his thinking. In the email, Satoshi explains that the decision to place a 21 million cap on Bitcoin was but an educated guess. He needed to decide in advance with no knowledge of how Bitcoin’s future would unfold.
Satoshi sought a figure that would eventually allow pricing denominated in Bitcoin to be on par with other currencies. Further, it was explained that Bitcoin provides a high degree of visibility, thus allowing for pricing flexibility. This divisibility ensures that even during a low supply, Bitcoin can serve as a medium of exchange.
Will Bitcoin’s Hard Cap Ever Change?
Is the 21 million limit bound to change over the years? Unlikely. This is all thanks to the cryptocurrency’s robust incentive and governance model that protects the hard cap.
Protection by Bitcoin’s Incentive Model
There’s a lack of incentive to increase the supply of Bitcoin. Doing so would cause inflation and destroy Bitcoin’s core investment thesis−its scarcity. For most investors, what makes Bitcoin an attractive investment option is its predictable, fixed supply. Wealth managers and institutions have attributed Bitcoin’s growing value to its scarcity.
Thus, eliminating the cryptocurrency’s driver of value isn’t in the miners’ best interest. While the change would improve miner revenue in Bitcoin terms, people would lose faith in Bitcoin. Consequently, the network would experience a catastrophic price collapse, causing a loss of miner revenue in fiat terms.
Protection by Bitcoin’s Governance Model
Bitcoin has a decentralized governance model. As such, protocol changes can only take place after widespread consensus, making them difficult. How so? Each node in the network operated independent software, rejecting any invalid blocks. Although many nodes utilize the latest Bitcoin core version, several others run older versions, making it hard to effect changes across the network.
Will the 21 Million Limit Ever Be Reached?
It isn’t expected for the total number of issued Bitcoins to ever reach 21 million. This is because the Bitcoin network employs the use of bit-shift operators. These are arithmetic operators responsible for rounding decimal points down to the closest smallest integer.
This rounding down happens when the block reward for creating a new Bitcoin block is halved, resulting in the calculation of the new reward amount. The reward can be expressed in satoshis, with one Satoshi equaling 0.00000001 Bitcoins.
Being the smallest unit of measurement in the Bitcoin network, a Satoshi can’t be split in half. Therefore, when instructed to split a Satoshi in half to calculate a new reward amount, the Bitcoin blockchain is designed to round down to the nearest whole integer. This rounding down is the reason the number of bitcoins issued is likely to fall below 21 million.
What Next After all 21 Million Bitcoins Are Mined?
As Bitcoin approaches its maximum supply, the impact on Bitcoin miners will hinge on how Bitcoin evolves. Transactions will still be grouped into blocks and processed, although miners may only earn fees for transaction processing.
Looking ahead to 2140, if Bitcoin is primarily used as a store of value and not for day-to-day transactions, miners could still profit despite lower transaction volumes and zero block rewards. Additionally, more efficient ‘layer 2’ blockchains could collaborate with the Bitcoin network to facilitate daily spending of Bitcoins.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
