To understand why there will never be more than 21,000,000 bitcoin, we need to first understand where a bitcoin comes from.
There are only two ways to get a bitcoin:
- You can mine it.
- After it was mined, you can buy it, earn it or trade for it.
Did you say “mine” it? How do you “mine” a bitcoin?
Every coin must first be mined and recorded in the blockchain. Then it can be sold or traded.
With dollars and every other fiat currency, someone can press a button and instantly create more of it. But with bitcoin, no one can arbitrarily decide to make more coins. Every coin must be mined.
To mine for gold, you must expend real world energy at real-world expense. To mine Bitcoin, you must also expend real-world energy at real-world expense. However, bitcoin mining is done by computers.
When “mining”, these powerful computers expend enormous amounts of processing power (requiring lots of electricity) to correctly guess a very long series of numbers.
The miner whose computer guesses correctly wins the right to add the next block to the blockchain.
And to compensate the miner for the expense involved, the Bitcoin software awards the miner with some “free” bitcoins.
The blockchain is updated showing that you own those new coins.
What is the Bitcoin blockchain?
The Bitcoin blockchain is a database that keeps track of every coin that comes into existence and every subsequent transaction. This is how we know who owns which bitcoin at any point in time.
The blockchain is updated every ten minutes (approximately) by adding a new “block.” A “block” is just data about every transaction since the previous block ten minutes prior.
The miner whose computer is the first to guess the long series of numbers is the one who gets to add the next block.
But how do we know that all the transaction data in the block is honest and accurate?
Most databases are centralized. Meaning, they are located in one place and controlled by one person, company or government.
But Bitcoin is very different. The bitcoin database – the blockchain – is located on tens of thousands of nodes operated by regular people, all around the world.
Every node contains a complete copy of the blockchain; from the very first block mined by Satoshi until the new block added just now.
When a miner correctly guesses the number and submits a block to be added to the chain, every node checks it to be sure that all transactions were in accordance with the rules.
Only after all the nodes agree that the new block is valid, is it accepted as a new block in the chain.
While it is very expensive for a miner to mine a new block, it is free for the nodes to validate every block before accepting it. This keeps everyone honest.
How many bitcoins are awarded to the miners?
When bitcoin began in 2009, miners received 50 bitcoin for every block they mined and added to the blockchain.
However, after every 210,000 blocks the miner’s reward is cut in half. This is called the “halving” and it takes place every four years.
On November 28th, 2012 – the first halving – the reward dropped from 50 bitcoin to 25.
The second halving was on July 9th, 2016. The reward dropped from 25 bitcoin to 12.5.
Then on May 11th, 2020 the reward dropped further to 6.25.
And the fourth halving is expected to be sometime in April of 2024. At that point, the block reward will drop again to 3.125 bitcoin.
As you can see, very soon, the reward will be less than one bitcoin.
Every bitcoin divides into 100,000,000 satoshis. By the sixth halving, the miner reward will be only 78,125,000 satoshis.
Eventually, in the year 2136, after a total of 32 halvings, the reward will be a single satoshi.
And four years later, in 2140, no more bitcoin or satoshis will be awarded to miners.
At that point, there will be just under 21,000,000 bitcoins in existence.
After that last satoshi is awarded, the Bitcoin Core software will no longer issue any new coins.
But what’s to stop someone from changing the software to create more coins?
You may wonder “But if Bitcoin is just software, then what’s to stop someone from changing the code so that there will be 50,000,000 Bitcoin instead of 21,000,000?”
This really boils down to two questions:
- Who might want to increase the 21 million cap?
- Who has the power to increase the 21 million cap?
We will first look at who might want to increase the cap. And I’ll show you how the ingenious bitcoin incentive structure doesn’t give anyone the incentive to increase the cap.
Then, we will look at who has the power to increase the 21,000,000 cap. And I’ll show you that even if a malicious actor wants to increase the cap in order to destroy Bitcoin, they still lack the power to do it!
1. Who might want to increase the 21 million cap?
- Miners & Node operators
- Malicious actors such as governments
Miners & Node operators:
We explained that the Bitcoin blockchain is kept on tens of thousands of nodes operated by tens of thousands of individuals all around the world.
These nodes are managed by average people – who own above average amounts of Bitcoin.
The only way to increase the 21 million cap would be to change the software on ever single node, everywhere in the world.
And because there is no automatic update to Bitcoin Core software, every node operator would have to go download and install it.
But the node operators have every incentive to NOT accept a version of the software that increases the cap above 21 million.
If the number of coins were to increase, the value of every existing coin will drop.
Meaning, if I owned 10% of all bitcoins and the max supply was doubled from 21,000,000 to 42,000,000, I now only own 5% of the total.
But it’s really much worse than that. Overnight, trust in the Bitcoin network would vanish because the most basic reason to own bitcoin – scarcity – vanishes. Everyone would look to sell and there would be no buyers at ANY price.
Of course, it makes no sense for miners to have more coins to sell – if no one will buy!
Miners spend a lot of money for their mining machines (called ASICs, which cost thousands of dollars each) and thousands of dollars more for the electricity to produce a bitcoin.
If the rules were changed to allow more than 21 million coins and the price per coin collapsed, the miners would lose everything.
And so the miners have every incentive to maintain the 21,000,000 cap.
The ingenious game theory of Bitcoin ensures that no one would run a version of the software that changes the 21 million con max.
Malicious Actors:
Unfortunately for malicious actors, the Bitcoin network is brilliantly anti-fragile. Meaning, any attempt to take it down will only make it strong.
If a malicious actor, such as a government, would want to increase the supply to destroy Bitcoin, they will only end up proving how secure it is.
So to answer –
2. Who has the power to increase the cap?
The answer is… no one.
The rules of the Bitcoin are based on a consensus.
To change the consensus from 21,000,000 you would need to change the Bitcoin Core software and then convince tens of thousands of node operators around the world to run it.
But we’ve already seen why node operators would never agree to that.
And even if you could convince some of them, it would be like trying to change the rules of chess: You and a few friends can play by your own new rules, but everyone else will continue playing by the rules of chess.
You’d end up with two versions of Bitcoin – the original, the real thing – and your new version.
Anyone who holds the original will continue to hold the original; with it’s 21,000,000 supply. And anyone who wants to buy the new one, with whatever new rules it has, can do so.
The original Bitcoin will chug along.
Because failure to change Bitcoin is so likely, a government is far more likely to try to ban or regulate Bitcoin.
Oppressive regulation might slow Bitcoin adoption. But that, too, won’t stop it. There will always be countries that allow it and people will find ways to trade with it.
If you’d like to better understand how Bitcoin works under the hood, an excellent book is Yan Pritzker’s “Inventing Bitcoin.”
Pritzker’s book takes you step-by-step through the thinking and mechanics behind Bitcoin.
You’ll gain a remarkable understanding of how and why Bitcoin works.
If you’d like a free digital copy of Inventing Bitcoin by Yan Pritzker, enter your email address here and they’ll send it to you right away.
Yan’s book is great, whether you’re a technical kind of person or not.
But if you are a bit more technical, watch this excellent lecture by Andreas Antonopolis: Consensus Algorithms, Blockchain Technology and Bitcoin UCL – by Andreas M. Antonopoulos
And in this video, a programmer takes you through the Bitcoin Core sourcecode and shows you where the 21,000,000 limit is coded. Studying the Bitcoin’s source code for 21M cap
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If you’ve been reading our articles in order, you now understand how remarkable bitcoin is, especially compared to fiat.
In our first article, I showed you how no one would choose to own a money that a third party can inflate and devalue.
In this article, you now understand that it is the people who own bitcoin who will make sure that the 21,000,000 cap is never changed.
There is no third party who can come and change it. Only WE can change it. And we have every reason in the world to NOT change it.
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And when you’re ready to buy your first $100 of Bitcoin, or $1,000 – or more, I recommend you buy from the people at Swan who will treat you as well as they’ve treated me.
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Remember: Nothing on this site is investment advice. While it is my personal opinion that everyone should own at least some Bitcoin, that is only my personal opinion.
You, of course, need to do your own research and consult with your own advisors until you make the right decision for you.