21 million

Onramp Fundamentals Series – Chapter V

Bitcoin’s monetary policy can be broken down into three core rules:

  1. There is a predetermined, fixed supply of 21 million bitcoin
  2. Released to the market every 10 minutes, on average (every time a new block is mined)
  3. On a schedule of 50 bitcoin per block beginning with the Genesis block (the first block ever mined), and halving every 4 years (210,000 blocks) until the final satoshi is released around the year 2140.

Source: Onramp Terminal (Future Bitcoin Supply)

The exact number of 21 million bitcoin is not intrinsically important. Simply having a fixed supply, of any quantity – so long as it was divisible into small enough units to be useful as money for everyday purchases – ensured that bitcoin, if successful, would be the hardest money the world has ever known.

The predetermined release schedule shown in the table above is achieved through the block subsidy – the amount of bitcoin awarded to the miner who successfully mines the next block. A block is a batch of transactions that users of the bitcoin network wish to execute.

That a new block is mined every 10 minutes, on average, is achieved through the difficulty adjustment – how much computing power must be deployed to mine a new block.

But how do we know there will only ever be 21 million?

21 million was hard-coded into the bitcoin core software by Satoshi, and by design is impossible to change without consensus among a supermajority of bitcoin network stakeholders.

The 21 million cap is enforced by consensus, meaning that all participants in the network agree to follow and enforce bitcoin’s protocol rules.

If a supermajority of participants decided they wanted to change the 21 million cap, they, in theory, could.

But Bitcoin is rigid and resistant to change by design. Any significant changes require widespread agreement and coordination among miners, developers, node operators, holders, users, and other stakeholders, making arbitrary alterations – like changing the supply limit – difficult to achieve.

Beyond the practical and technical challenges of changing the 21 million fixed supply are the economic disincentives. The fixed supply is a crucial part of bitcoin’s value proposition as a digital asset. It creates scarcity, which is a key feature that appeals to network participants, and it is unlikely that rational economic actors would willfully dilute their hard earned bitcoin.

On the other hand, you might ask, why wouldn’t participants do the opposite and decrease the supply to inflate the value of their bitcoin holdings?

Bitcoin’s rigidity and resistance to change is another crucial part of bitcoin’s value proposition. If it is shown that it can be easily manipulated, it becomes no different than any other centrally controlled money supply, and would be likely to lose much, if not all, of its value. For this reason, bitcoin participants also have an economic incentive to not decrease the fixed supply limit, either.