Did you know that there can only ever be 21 million Bitcoins in the world? Interesting, right? Why not 1 million, 100 million, or even infinity? Since we can’t ask Satoshi, the mysterious creator of Bitcoin, why he or she set the limit at 21 million, we’ll instead present you with a couple of intriguing theories. Let’s dive into the fascinating world of Bitcoin’s supply cap.
The Money Supply Replacement Theory
According to an email supposedly shared between Satoshi and Bitcoin core contributor Mike Hearn, Satoshi mentioned, “I wanted to pick something that would make prices similar to existing currencies.” Going back to 2009, when Bitcoin was invented, the total global money supply, including cash, coins, demand deposits, travelers checks, and others, was approximately 21 trillion dollars.
On one hand, a dollar’s smallest unit is a cent; each dollar equals a hundred cents. So, the total existing currency in 2009 was around 2,100 trillion cents. On the other hand, Bitcoin’s smallest unit of currency is called a Satoshi. Each Bitcoin is equal to a hundred million Satoshis. If the total supply is capped at 21 million, then it means there will only ever be 2,100 trillion Satoshis.
In Satoshi’s email to Mike Hearn, he further explains that 0.001 BTC could be worth one Euro. This prediction actually came true in 2013. Of course, Bitcoin is now worth much more, which Satoshi also accounted for, saying, “Without knowing the future, that’s very hard.” The fact remains that the numbers are pretty close to just being a mere coincidence.
The Mathematical Theory
Alternatively, some have argued that the 21 million cap is arbitrary and can be explained by some quick math. This theory suggests that 21 million is the limit because of two rules decided on by Satoshi Nakamoto: new blocks are added onto the chain roughly every 10 minutes, and mining rewards would be halved every 210,000 blocks. This process is known as the Bitcoin halving.
The Bitcoin halving is when rewards for miners are slashed in half and takes place after every 210,000 blocks are mined, which happens to be roughly every four years. So, in 2009, for every block mined, miners earned 50 Bitcoin, then 25 Bitcoin in 2012, then 12.5 Bitcoin in 2016, 6.25 Bitcoin in May 2020, and the next halving is set to take place in March 2024.
The Halving Sequence
The halving sequence looks something like this: 50 BTC + 25 BTC + 12.5 BTC + 6.25 BTC, and so on, adding up to roughly 100 BTC. By the time the block rewards get to zero BTC, which is estimated to be in 2140, the total number of Bitcoins released into circulation just happens to be 210,000 blocks x 100 BTC, which equals around 21 million.
However, this doesn’t explain why Satoshi chose the 10-minute block time or the four-year halving schedule. Some people speculate that it may be because he liked blackjack – a game often associated with the number 21.
Which Theory Makes More Sense?
So, which theory makes more sense? In truth, only Satoshi Nakamoto truly knows, and he or she isn’t telling. The mystery adds an extra layer of intrigue to the already complex nature of Bitcoin. Whether it was a calculated decision based on economic theories or a result of arbitrary choices, the 21 million Bitcoin supply cap remains a fundamental aspect of its value proposition.
Bitcoin’s scarcity is one of its most compelling features, setting it apart from traditional fiat currencies that can be printed indefinitely. This finite supply is a key reason why many view Bitcoin as “digital gold,” a hedge against inflation and a store of value.
In conclusion, while we may never know the exact reasoning behind the 21 million cap, the theories presented offer fascinating insights into the potential thought process of Bitcoin’s enigmatic creator. As Bitcoin continues to evolve and gain mainstream acceptance, the debate over its supply limit will likely remain a topic of interest for economists, technologists, and enthusiasts alike.
Read More: Understanding Cryptocurrency Liquidity: A Deep Dive
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