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Is There a Supply Limit for Bitcoin?

Bitcoin, like many other cryptocurrencies, was designed around the principle of a finite supply. It means there’s a fixed upper limit on how many Bitcoin can ever come into existence.

In Bitcoin’s case, the limit has been set by Satoshi Nakamoto, and it is precisely 21M. For other cryptocurrencies, this cap can vary, ranging from as low as 18.9M for Monero (XMR) and Dash to as high as 100B for the likes of XRP and Tron (TRX).

Bitcoin’s limited supply is a huge advantage. It keeps cryptocurrency scarce, ensuring that its value holds steady for the near future. For this reason, Bitcoin is called “digital gold,” like gold, there is only a certain amount of Bitcoin that exists.

The theory of money supply replacement

By limiting its maximum supply, slowing the rate where new Bitcoin comes into existence, Satoshi intended every individual Bitcoin unit to appreciate in due time.

Satoshi reasoned that if a part of the world economy used 21 M coins, 0.001 BTC could be worth around €1. The prediction came true back in 2013 when Bitcoin broke through the €1,000 price point; today, each mBTC is currently worth closer to €8.25.

By the time of Bitcoin’s creation, the whole world’s money supply stood at around 421T. This figure comprises the total value of all the physical money in the world, including cash, coins, travelers’ checks, and more.

If Bitcoin were to grow to become a single world currency, then each BTC will be worth $1M. There is 100M Satoshi in each Bitcoin, and it would place the value of each Satoshi to $0.01.

The other explanation

Though the money supply replacement theory is the most plausible rationale for why Satoshi selected 21 Million to be the cap for Bitcoin, there is another possible explanation.

Considering the parameters used to control Bitcoin’s supply, it is clear that the 21M BTC figure allowed the network to ensure that blocks are mined in a normal timeframe (10 minutes). It also confirmed that the amount of Bitcoin paid to the miners as block rewards decreased in a period, as the maximum supply approaches its limit. As it turns out, the parameters Satoshi set for this lead to the production of 21M BTC.

The Bitcoin core code now adjusts the mining difficulty to ensure that every new block is mined every 10 minutes on average, disregarding how much hash rate is pointed at the network. Based on this feature, around 210,000 blocks shall be drilled in every four-year cycle, after which the block reward is halved. The first cycle has seen 50 BTC mined per block; it was split to 25 BTC/block in 2012, then again to 12.5 BTC/block in 2016. Now it sits at 6.25/BTC block.

If you investigate further, you will find that the sum of the block rewards for every cycle equals 100 (50+25+6.25+3.125, etc.). By multiplying this number by the 210,000 blocks/cycle figure, you arrive at the maximum supply of 21 million.

Is Bitcoin’s supply cap a philosophical gesture or just the product of remorseless mathematical logic? Only Nakamoto knows it – and they (he or she) aren’t telling.

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