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Why Did Satoshi Nakamoto Choose 21M as Bitcoin’s Maximum Supply
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Why Did Satoshi Nakamoto Choose 21M as Bitcoin’s Maximum Supply?
Bitcoin is different from dollars or gold, but it’s interesting to consider the comparison. Bitcoin is not a physical commodity like gold and silver are. Instead, it is an entirely digital currency that has been designed for maximum scarcity by its creator Satoshi Nakamoto. There will only ever be 21 million bitcoins in circulation, which we called a supply cap.
But Why Only 21 Million?
The answer to “why 21 million” has to do with the amount of computing power available during Bitcoin’s infancy.
Bitcoin is a cryptocurrency, which means its transactions are secured by cryptography. A hash function called SHA-256 is at the core of this process, and mining – using enormous amounts of computational power (aka “hashing power”) to solve the mathematical equations that keep Bitcoin secure – serves two purposes: creating new coins and confirming transactions.
The first set of computer power needed to mine came from regular desktop computers mining at a reasonable rate, but as more sophisticated chips (ASICs) were created to mine Bitcoin more efficiently, “hashing power” increased exponentially. This means that for Bitcoin to remain secure, the difficulty of mining needed to adjust, which meant new miners could not enter the market and start hashing at an acceptable rate.
Even with 50x or 100x more computers, there wouldn’t be enough hash power to keep up with a constantly increasing difficulty level. As a result, the supply of mining computers was limited to what could be produced ten years ago. According to Dr. Wright, Satoshi Nakamoto chose a 21 million supply cap is because many SHA-256 hashes took for one block on average in 2009 when Bitcoin launched.
The processing power increases by Moore’s law every 20 years. Satoshi Nakamoto would have known that in 2019 the number of hashes necessary to mine one block every 10 minutes would be so high with ASIC miners that it wouldn’t be feasible for a new player to enter.
Judging from these early writings, Satoshi actively entertained the possibility of Bitcoin being a world currency. In that spirit, and using our current understanding of computing power, if Satoshi were to release a new version of the Bitcoin software today, it would probably take more than 21 million hashes to mine one block every 10 minutes.
Increasing the Supply
why Bitcoin’s Maximum Supply is 21m
Since Bitcoin was first released to the public in 2009, one group is not subject to Moore’s law: the number of bitcoins “21 million” that will ever be available. 21 million BTC is “hard-wired” into the system through its code. The supply will not increase unless the code is changed to allow a change in supply – which no one can do at this point. Even If you could do it, you need to convince every exchange to adopt the change, which is almost impossible.
Twenty-one million was chosen for one primary reason: to keep inflation at bay as Bitcoin gained traction. That is why instead of increasing the maximum supply from 21 million to 100 million or even 1 billion, as some have proposed ( and subsequently been shot down ), the Bitcoin protocol will be upgraded to accommodate more transactions per block – without increasing the supply of bitcoins in circulation.
Success of Bitcoin
There are multiple metrics to judge the success of Bitcoin: from network-level confirmation security (transactions per minute and double-spend rate), transaction fees as a fraction of the money supply, monetary base velocity, percentage of transactions using bitcoin as opposed to fiat currency (in the long term), average value of transactions, number of merchants accepting bitcoin, number of individuals with at least one bitcoin in their wallet and other metrics.
From the network’s perspective, Bitcoin has been the most secure and most successful cryptocurrency since its inception in 2009.
People are investing in bitcoin because the demand for bitcoins is increasing, not necessarily because they believe its supply will be capped at 21 million. Investors are interested in bitcoin in the value it holds and how it has a chance to be a world currency one day.
The Global Success of Bitcoin
How many bitcoin users are there
It is necessary to look at how people use it across global markets to decide the fate of cryptocurrency. There are currently 200 million Bitcoin wallets who either own or have used Bitcoin since 2009, which means that even at this early stage, Bitcoin has surpassed, in terms of adoption, all other alternative crypto-currencies, and payment networks.
Based on current trends, the total number of bitcoin holders will probably grow more and more over time. People in different countries are starting to use bitcoin more broadly, with no significant problems reported. And there are many signs that the growth of Bitcoin will accelerate, especially in countries with weak currencies.
Bitcoin is different from dollars or gold, but it’s interesting to consider the comparison. Bitcoin is not a physical commodity like gold and silver are. Instead, it is an entirely digital currency that has been designed for maximum scarcity by its creator Satoshi Nakamoto. There will only ever be 21 million bitcoins in circulation, which we called a supply cap.
But Why Only 21 Million?
The answer to “why 21 million” has to do with the amount of computing power available during Bitcoin’s infancy.
Bitcoin is a cryptocurrency, which means its transactions are secured by cryptography. A hash function called SHA-256 is at the core of this process, and mining – using enormous amounts of computational power (aka “hashing power”) to solve the mathematical equations that keep Bitcoin secure – serves two purposes: creating new coins and confirming transactions.
The first set of computer power needed to mine came from regular desktop computers mining at a reasonable rate, but as more sophisticated chips (ASICs) were created to mine Bitcoin more efficiently, “hashing power” increased exponentially. This means that for Bitcoin to remain secure, the difficulty of mining needed to adjust, which meant new miners could not enter the market and start hashing at an acceptable rate.
Even with 50x or 100x more computers, there wouldn’t be enough hash power to keep up with a constantly increasing difficulty level. As a result, the supply of mining computers was limited to what could be produced ten years ago. According to Dr. Wright, Satoshi Nakamoto chose a 21 million supply cap is because many SHA-256 hashes took for one block on average in 2009 when Bitcoin launched.
The processing power increases by Moore’s law every 20 years. Satoshi Nakamoto would have known that in 2019 the number of hashes necessary to mine one block every 10 minutes would be so high with ASIC miners that it wouldn’t be feasible for a new player to enter.
Judging from these early writings, Satoshi actively entertained the possibility of Bitcoin being a world currency. In that spirit, and using our current understanding of computing power, if Satoshi were to release a new version of the Bitcoin software today, it would probably take more than 21 million hashes to mine one block every 10 minutes.
Increasing the Supply
why Bitcoin’s Maximum Supply is 21m
Since Bitcoin was first released to the public in 2009, one group is not subject to Moore’s law: the number of bitcoins “21 million” that will ever be available. 21 million BTC is “hard-wired” into the system through its code. The supply will not increase unless the code is changed to allow a change in supply – which no one can do at this point. Even If you could do it, you need to convince every exchange to adopt the change, which is almost impossible.
Twenty-one million was chosen for one primary reason: to keep inflation at bay as Bitcoin gained traction. That is why instead of increasing the maximum supply from 21 million to 100 million or even 1 billion, as some have proposed ( and subsequently been shot down ), the Bitcoin protocol will be upgraded to accommodate more transactions per block – without increasing the supply of bitcoins in circulation.
Success of Bitcoin
There are multiple metrics to judge the success of Bitcoin: from network-level confirmation security (transactions per minute and double-spend rate), transaction fees as a fraction of the money supply, monetary base velocity, percentage of transactions using bitcoin as opposed to fiat currency (in the long term), average value of transactions, number of merchants accepting bitcoin, number of individuals with at least one bitcoin in their wallet and other metrics.
From the network’s perspective, Bitcoin has been the most secure and most successful cryptocurrency since its inception in 2009.
People are investing in bitcoin because the demand for bitcoins is increasing, not necessarily because they believe its supply will be capped at 21 million. Investors are interested in bitcoin in the value it holds and how it has a chance to be a world currency one day.
The Global Success of Bitcoin
How many bitcoin users are there
It is necessary to look at how people use it across global markets to decide the fate of cryptocurrency. There are currently 200 million Bitcoin wallets who either own or have used Bitcoin since 2009, which means that even at this early stage, Bitcoin has surpassed, in terms of adoption, all other alternative crypto-currencies, and payment networks.
Based on current trends, the total number of bitcoin holders will probably grow more and more over time. People in different countries are starting to use bitcoin more broadly, with no significant problems reported. And there are many signs that the growth of Bitcoin will accelerate, especially in countries with weak currencies.
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