“Does bitcoin have to be capped at 21 million coins?”
“Why does Bitcoin have a supply limit and can it be increased?”
“Here’s Why Bitcoin’s Supply Limit Will Never Be Raised”
If there is one thing that is really looming over the Bitcoin industry right now, it is the supply cap. This is what determines the total number of coins that can be mined for any given cryptocurrency. But is the Bitcoin supply limit absolute and should we care if it is?
Bitcoin supply limit
The Bitcoin supply limit has always remained at 21 million coins. When the elusive Satoshi Nakamoto initially developed Bitcoin in 2009, they designed the source code to specifically cut off their supply by 21 million. But some cryptocurrencies have an infinite supply, meaning infinite coins can be mined for years and years. So why would Nakamoto set a cap on Bitcoin in this way?
To understand this, think about the value of gold. This precious metal is in finite supply, which is one of the key factors that gives it such a high value. It takes a long time for gold to form, so once a mine is depleted, you can’t go back for more. This was the idea that Nakamoto had when designing Bitcoin. By giving it a supply limit, it becomes more precious and more valuable.
Bitcoin supply limit increase
A great way to earn a lot of money passively in the crypto industry is through bitcoin mining. This involves both putting new cryptocurrencies into circulation and validating blocks of transactions within the network to make it more secure. Both avenues can be very profitable, with a reward of around 6.25 BTC currently being paid to anyone who mines a full block. To put that into perspective, 6.25 BTC is worth over $240,000, so it is safe to say that Bitcoin mining is a lucrative venture.
But there is an increasingly worrying problem associated with Bitcoin mining that discourages people from starting Bitcoin mining. As more and more coins are put into circulation and more blocks are validated, the mining process becomes much more difficult. This is because as the supply of Bitcoin approaches its limit, the chances of successful mining decrease as coins become scarcer.
Also, as time passes and more coins are mined, the reward available to miners is continually halved. In 2024, the Bitcoin mining reward will drop from 6.25 BTC to just 3,125 BTC, and this is just another factor hanging over the mining community.
In addition to this, miners know that once the supply limit is reached, they can no longer make a profit mining Bitcoin. So if this supply limit were to be increased or removed altogether, miners can earn rewards indefinitely, right?
Technically, yes. Making the Bitcoin supply significantly larger or infinite would mean that a larger or infinite number of coins could be mined. However, if this change were made, the price of Bitcoin would very likely to plummetand the market would face catastrophic consequences.
This is simply because if Bitcoin’s scarcity were to suddenly decrease significantly, it would send a ripple through the industry, changing the way investors view Bitcoin as an asset. Again, you can go back to the gold analogy we used a bit earlier to understand this. If gold were suddenly infinitely available, its price would crash completely, as it would no longer be a coveted precious metal. The same goes for Bitcoin. If it’s infinitely available, it just doesn’t have the same allure.
Of course, there are coins with an infinite supply that have value, like Ethereum. Which begs the question: why can’t Bitcoin stay at its current value while being infinitely or significantly more available?
Why Bitcoin can’t be infinitely available and highly valuable
It is important to remember here that Bitcoin and Ethereum do not work in the same way. Yes, they are both cryptocurrencies created on their own blockchain (although “Ether” is the name of Ethereum’s native currency) and can be bought and sold, but blockchains have different uses. While Bitcoin is seen more as a store of value, the Ethereum blockchain is incredibly useful for all things decentralized.
The Ethereum blockchain is hugely popular for developing dApps, new tokens, NFT collections, and other projects. In fact, it is considered by many to be the best blockchain in the world for its use of smart contracts. Gas fees, which are paid by users to compensate for the immense computing power of Ethereum, are also paid in Ether and only in Ether, giving this currency another use beyond trading.
So, in short, if Bitcoin, a cryptocurrency primarily designed as an alternative currency, suddenly had an infinite supply cap, it would certainly see a price drop. And it will likely never recover if this infinite supply cap were made permanent.
But let’s be imaginative for a moment. If, by a small chance, it was decided to increase the Bitcoin supply limit, how would it be done?
The process of increasing the Bitcoin supply limit
If it were decided that the Bitcoin supply limit would be changed, this could not be done with the click of a button. Rather, altering this limit would mean changing the source code of Bitcoin, which is impossible because the code exists within a decentralized systemwhere no user has full control over the network.
The Bitcoin blockchain itself consists of thousands of nodes, or connection points, all of which host the network’s source code. Most of these nodes run on Bitcoin Core, the most widely used software to connect a node to the blockchain. But this is not the case across the board, and many nodes are running older type of software.
Therefore, if the provisioning cap were to be changed, each node on the network would have to use a new type of software, which can be a very difficult task. Furthermore, altering the Bitcoin source code would cause a lot of tension in the community, with some believing that the change would be necessary and others believing that such a change would go against Nakamoto’s vision of Bitcoin.
But there is a very interesting point here that many are unaware of, and that is the fact that the Bitcoin supply limit may never be reached.
Reaching the Bitcoin supply limit
First of all, it has been estimated that it will take us almost one hundred and twenty years to mine the entire Bitcoin supply of 21 million coins. But even in this case, there is a stipulation that could prevent this from happening.
Within the Bitcoin network, bit shift arithmetic operators round decimals in mining rewards down to the smallest whole number. Because this can happen every time a block reward is halved, the total amount of Bitcoin that can be mined is likely to be just under 21 million.
But once the last Bitcoin is mined, what happens? How will the mining landscape change? Well, as you may have guessed, transactions will still take place in Bitcoin, which will need to be validated, but this means that miners will only be paid for processing blocks, not for putting new coins into circulation. This means that the average miner probably won’t be able to make as much profit as they are now, which is obviously a concern for some.
Bitcoin supply cap is here to stay
While the idea of increasing the Bitcoin supply limit may be tempting to some, it is simply out of the question for a number of reasons. Although miners within the Bitcoin network may continue to make healthy profits for now, the clock is ticking, and we will certainly see major shock waves in the industry when the last Bitcoin has been mined.
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