Why Bitcoin Has A Limited Supply.
- 4 mins
As a crypto enthusiast, you may have wondered why bitcoin has a limited coin supply. Well, one of the many mysteries surrounding the creation of Bitcoin is why the total supply is restricted to 21 million.
Here's the thing, when Satoshi created Bitcoin, the global M1 money supply stood at approximately $21 trillion. In economics, this includes all physical currency and coins, demand deposits, traveller's checks, other checkable deposits and negotiable order of withdrawal accounts.
Every dollar can be divided into 100 cents, making the total number of pieces of money to exist at around $21 trillion. 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 2.1 qaudrillion satoshis. Based on this, Bitcoin would be well suited to replace all fiat currencies and have the ability to act as a global currency.
Most think the limited supply is due to an approach from Satoshi Nakamoto to create electronic cash that serves as deflationary “hard money”.
However, there are other reasons to consider.
__All Bitcoins have been issued already. __
Today the block reward miners do not “create” more Bitcoins even though people think that’s what mining is about. Satoshi Nakamoto has already issued all existing Bitcoins when launching the Bitcoin system. There are no more “newly issued” Bitcoins coming to life, no matter what miners do.
It is crucial to understand the difference between the issuance of Bitcoins and the distribution of Bitcoins.
Satoshi Nakamoto issued all Bitcoins in January 2009 and in an automatic sequence, the Bitcoin software is distributing them to the honest nodes (miners) that perform their work in and for the Bitcoin system. These miners then distribute them to others by selling them off on the open market to fund their ongoing business operations. As of taday an estimated 19.1 million Bitcoins has been mined, with about 1.9 million still to be distributed.
Why did Satoshi Nakamoto stop issuing Bitcoins though?
So to be clear, the distribution of Bitcoins is still ongoing while the issuance of Bitcoins was a one-time event that happened already when Bitcoin was launched back in January 2009.
Could Satoshi Nakamoto issue more Bitcoins? And therefore distribute more Bitcoins to the miners?
He definitely could, but it probably is wise not to do so. And this is not due to the thought of “more Bitcoins harm the deflationary status of Bitcoin.” It rather has to do with regulatory reasons concerning issuing something of value, and the contractual nature of Bitcoin.
Satoshi Nakamoto has made a promise and is contractually bound to it
First of all, Satoshi Nakamoto set up Bitcoin in a way that no more Bitcoins are going to be issued. Miners who accept Satoshi Nakamoto’s unilateral offer perform their work in the Bitcoin system believing that these “set in stone” rules of Bitcoin will never change.
Changing the limited supply of Bitcoin would be incoherent with the Bitcoin contractual offer that Satoshi has made to the world.
Satoshi Nakamoto would not want to issue more Bitcoins for another reason though
There is more to it than the contractual side of Bitcoin.
Let us pay close attention to what Satoshi Nakamoto did when he issued the 21 million Bitcoins initially.
What did he issue? Security? A commodity? Something else?
What was Bitcoin worth when Satoshi Nakamoto issued all 21 million Bitcoins? Bitcoins had no value when Satoshi Nakamoto issued them. He issued something of no value. This is crucial to understand.
If he would issue more Bitcoins now, he would issue something of great value. There are regulatory and more importantly tax-related issues doing such a thing.
The limited supply of Bitcoin is not foremost about creating ‘hard deflationary money.
The once and never repeated issuance of Bitcoins was a wise step for Satoshi Nakamoto as the issuer himself. Spared and still spares him a lot of legal and financial trouble to have done it exactly this way.
Was this article helpful?
Give us your feedback