Why Bitcoin is limited to 21 million

Bitcoin is the king of cryptocurrency, it rules the space and commands dominance of over 42%. With a market capitalization of close to $1.2 trillion, it has a limited supply of 21 million tokens.

There are only 21 million tokens to be issued, and the million-dollar question is why the developers and architects chose this number.

Whether Satoshi Nakamoto was an individual or a group of developers is still a mystery. I want to focus on the 21 million number and how the people/group behind Bitcoin felt that this would be enough for the entire world.

The answer to this question, however, is not in Bitcoin's whitepaper which explains why it was created. The answer lies in the way it works and in other security features. 

It explains how transactions will take place on the blockchain network, how the blocks will have a timestamp so they cannot be reversed, how the nodes will be broadcasted to all nodes, what incentives miners will receive, how payment verification will be simplified with total privacy, etc.

After the mass adoption of Bitcoin, many believe that the total number of tokens should have been higher to allow more people to buy it. With the current price of around $55,000 per BTC, it is inaccessible for the average person. 

Email correspondence with Satoshi

The reason for 21 million BTC was investigated by many crypto experts. A very compelling argument for this support comes from correspondence between Satoshi Nakamoto and software developer Mike Hearn. 

Satoshi Nakamoto said, " I wanted to pick something that would make prices similar to existing currencies, but without knowing the future, that’s very hard. I ended up picking something in the middle."

In the same email, Nakamoto explained that bitcoin would be worthless if it remained a niche currency. If Bitcoin were used for the overall economy, there would only be about 21 million coins in circulation, so it would be worth much more per unit.

According to one argument, the global M1 money supply was approximately $21 trillion when Satoshi released Bitcoin. If we divide every dollar into 100 cents, the total amount of money exists at around $2,100 trillion.

Money supply behind 21 million BTC

M1 is the money supply that is composed of physical currency and coins, demand deposits, travelers' checks, other checkable deposits, and negotiable order of withdrawal (NOW) accounts. M1 includes the most liquid portions of the money supply because it contains currency and assets that are or can be quickly converted to cash.

Similar to cents for a dollar, a satoshi is the smallest unit of Bitcoin. There are 100 million satoshis in each Bitcoin, which means there will only ever be 2,100 trillion satoshis – roughly the same as the global supply in 2009.

Other theories say that Bitcoin‘s 21 million limit was arbitrarily set when Nakamoto made two key decisions, firstly, Bitcoin should add new blocks to its blockchain every 10 minutes (on average); secondly, the reward paid to miners (starting with 50 BTC) halves every four years.

Based on this feature, a total of 210,000 blocks should be mined in each four-year cycle, after which the block reward is halved. The first cycle saw 50 BTC minted per block; this was halved to 25 BTC/block in 2012, then again to 12.5 BTC/block in 2016. Following 2020’s halving, it currently sits at 6.25/BTC block.

Mathematical calculation

A popular developers forum StackExchange has said that 21 million is more mathematical than coincidence. Let us have a look at the calculation they have put out. I have added a year to reward sizes for better understanding.

Calculate the number of blocks per four-year cycle:

6 blocks per hour

x 24 hours per day

x 365 days per year

x 4 years per cycle

= 210,240

~= 210,000

Sum all the block reward sizes: 50 (2009) + 25 (2012)+ 12.5 (2016)+ 6.25 (2020)+ 3.125 (2024)+ … = 100

Multiply the two: 210,000 x 100 = 21 million.

Whatever arguments or theories we make, only Satoshi can reveal the real reason behind 21 million BTC, until then many will come up with their preferred understanding about the maximum supply of BTC.

Only 3 million BTC are left to mine, so it will be 2040 before the last BTC is mined.

Jagdish Kumar
Klever Writer
Follow me on Twitter.com/TokenBharat

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