The 21 Million Maximum Bitcoin Supply Mystery – What Is The Origin of Satoshi Nakamoto’s Cap Decision & Why

Maximum Bitcoin Supply of 21 Millions - What Is The Origin & Why

Maximum bitcoin supply decision – with the advent of Bitcoin came a newfound revolution – a revolution in distributed computing, decentralized organizations and most importantly, in the borderless medium of exchange.

To many, Bitcoin represents a form of hope, a mechanism that would finally help the world rid of centralized power and control. To others, Bitcoin was nothing more than an alternative for money.

Satoshi Nakamoto, the pseudonym behind the creation of Bitcoin, saw the invention as nothing more than an experiment. To Satoshi, Bitcoin was a tool to see how a distributed form organization could work. He wanted to know how a network run by its participants would evolve.

Is Bitcoin Special? If so, Why?

There are probably a dozen or more innovations in bitcoin that are each worth a section of their own. But for the sake of this particular article, we will focus on the Bitcoin mining process.

Bitcoin mining is a method used to reward network nodes (miners) a small amount of BTC after a block is successfully verified. The role of a miner is pretty simple – verify a certain number of transactions, link it to the blockchain and get rewards for their participation.

When bitcoin was first initiated, the network reward was 50 bitcoins per block mined. The rewards follow a deflationary schedule where they halve every four years. And so, in 2012, the reward halved to 25 BTC and then to 12.5 BTC in 2016.

It is estimated that between May 13-24 the reward will halve again to 6.25 BTC. As a result, miners’ rewards will gradually decrease over time.

Following the same logic of halving reward, it is easily determined that the total supply converges to 20999999.97690000 or approximately 21 million.

Now here’s the mystery – why did Satoshi Nakamoto choose 21 million as the maximum number of bitcoins that can be brought into circulation? Why wasn’t the number higher or lower? If they wanted an asymmetric decreasing supply schedule, why didn’t they choose any other strategy of supply distribution?

Looking at the Bitcoin P2P whitepaper and going through the email correspondences that Satoshi had with several ‘Crypto Punks’, we can make several informed assumptions.

What Can We Say For Sure

  1. Satoshi wanted the supply to be deflationary
  2. They wanted to ensure no fresh issue was possible beyond the set limit
  3. Eventual scarcity of Bitcoin’s supply, to Satoshi, was of utmost important
  4. The diminishing rewards schedule would in turn fuel the increase in the rate of users
  5. As long as there is divisibility of units, it wouldn’t matter how many “bitcoins” are issued

Now that we have cleared the motivation behind Satoshi’s invention of Bitcoin, what can we say about the Supply cap?

Why Did Nakamoto Choose 21 Million as Maximum Bitcoin Supply?

As of February 2020, about 18.2 million Bitcoins have already been mined. Which means that only 2.8 million bitcoins remain. When referring to the supply schedule, one can see that a vast majority of the supply has already been put into circulation within the last 10 years, with the rest taking another century to do so. This clearly represents a deflationary supply schedule where a small number of initial miners have already claimed a bulk of the total supply.

Satoshi explained Bitcoin’s 21 million maximum supply decision, in his own words; “my choice for the number of coins and distribution schedule was an educated guess. It was a difficult choice, because once the network is going it’s locked in and we’re stuck with it.”

Although we can never quite know, let us look into several theories that the Internet has speculated

Bitcoin Maximum Supply Alternative Theories

1 Satoshi = 1 Dollar

It is clear from the corresponds Satoshi had with Mike Hearn, he wanted Bitcoin to eventually come to a place where it can be denominated with other major currencies. In his words, Satoshi 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”.

What this means that Satoshi planned for a certain denomination of BTC to be equivalent to a major currency, say 0.00000001 (1 satoshi) = 1 Dollar. This would make calculations to and from fiat currencies easier and efficient. A deflationary supply that increases in value over time could do the trick. Maybe that is why Satoshi choose 21 Million.

21 Million Was Just a By-product

The theory with the biggest consensus is that the number 21 Million was just a by-product. As discussed above, Satoshi planned to make the supply schedule with diminishing rewards so that the miners will slowly come to value their effort.

The schedule that he planned, with 50 Bitcoin per block and half the reward after every four years. That would have meant the number would eventually stop at 21 million. If Satoshi had devised another reward schedule, maybe the number 21 million would’ve been higher.

Conclusion

The Internet is not one to hold back on conspiracy theories. Ever since the discussion about the origins begun, people have thrown in their opinions, whether logical or not. Some say that the reason for the 21 million cap was because Satoshi loved to play blackjack. Some point to astrology and numerology as the reason for its implementation.

There is no way we can know the reasons behind Satoshi Nakamoto’s decision of 21 million bitcoin. Until we know who Satoshi Nakamoto is, the answer will remain a mystery.

Ever since the disappearance of Satoshi, there have been dozens of questions that still remain unanswered. For now, the only thing we can do is see how the 21 million bitcoin maximum supply decision pans out in the future.

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