Why the number of Bitcoin (BTC) is limited?

2018-11-29 09:00

If you are a crypto enthusiast, then a lot of questions must plague your mind such as why the number of Bitcoin is limited. Bitcoin can be compared to gold in a lot of ways. Just like how gold is mined from the ground, in a similar manner, Bitcoin also needs to be mined digitally.

Once miners have mined the finite supply of Bitcoins (which is capped at 21 million Bitcoins), then the supply of the cryptocurrency will be over. It will be the case unless Bitcoin’s protocol is modified to allow more supply. Bitcoin supporters are of the view that the fixed supply ensures that central authorities such as banks are not able to issue the currency arbitrarily.

The most direct effects of Bitcoin’s limited supply will be borne by the Bitcoin miners. The critics of Bitcoin’s limited supply are of the view that once the Bitcoin supply is over, miners will no longer be able to get the Block rewards that they get for Bitcoin mining. In order to sustain their operations, miners will have to fall back on the transaction fee earned when buying or selling Bitcoins. According to this belief, once miners stop earning Block rewards, they will find it increasingly difficult to continue the process through the fees earned in transactions. It will subsequently result in a decrease in the number of miners. Consequently, the Bitcoin network will become more centralized and hence its very aim (decentralization) will be diminished.

On the other hand, there are supporters of Bitcoin’s limited supply who believe that the cost of mining will even out in the future with mining chips becoming smaller, cheaper, and more efficient. It will result in mining becoming an activity with lower threshold of initial cost. The believers also think that ultimately transaction costs will increase, and they would be enough to sustain the mining business.

It is forecasted that the limited supply of Bitcoin would entail an increase in the prices of the cryptocurrency provided its demand also increases. At the moment there is a stockpile of inactive Bitcoin which is allegedly held by Bitcoin’s creator, Satoshi Nakamoto. Perhaps this supply of about one million Bitcoins is being saved for the time when the supply of the cryptocurrency will face increased demand.

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