Why Bitcoin Supply is Capped at 21 Million
Welcome back, I’m Kathleen Bitcoin. I’m 20 years old, new to the bitcoin world, and here to write on the current hot topics in bitcoin while I learn about it along the way.
If you didn’t know, there can only ever be 21 million bitcoin in existence. Let’s talk about why that is.
I should say that no one really knows the exact reason Satoshi Nakamoto picked 21 million when he (or she) was creating the currency, but there are some guesses as to why. One of them being, to hold value. Bitcoin’s limited supply is a huge advantage. It keeps the cryptocurrency scarce, theoretically ensuring that its value holds steady for years to come. Meaning, if it can run out, the more people will want it. Which means it increases in value. Just like gold or silver, etc. By maxing the supply, and slowing the rate new bitcoin come into existence (by being mined), they intended for each individual bitcoin to appreciate in value over time.
Another guess is that Satoshi was trying to make it become the single world currency. At the time it was being created, the entire world’s money supply was approximately $21 trillion. This number (known as the M1 money supply) is made up of the total value of all the physical money in the world. If bitcoin were to replace all the currencies that the M1 figure is made up of, then each bitcoin would be worth $1 million. Because there are 100 million satoshi in each bitcoin, this would make the value of each satoshi at $0.01. This theory may seem a bit far-fetched, but it also seems a little too intentional to be a coincidence.
So what happens after all 21 million are mined? Well, once bitcoin miners have unlocked every bitcoin, the supply will essentially be tapped out. While there can only ever be a max of 21 million, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available bitcoin in circulation could actually be much less. Like millions less. Which sucks big time. Currently, around 18.5 million bitcoin have been mined; this leaves less than three million that have yet to be introduced into circulation, not counting the situations just mentioned.
Once all bitcoin has been mined, the miners will still have incentive to process transactions with fees because every bitcoin transaction has a transaction fee attached to it, and said fees are roughly a few hundred per block (see “Bitcoin Blockchain”) now, but in the future they could be worth a couple thousand. Ultimately, it will function like a closed economy, where transaction fees are assessed much like taxes.
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