Bitcoin is easily the most recognizable form of cryptocurrency across the globe, and it’s something in which plenty of people have already invested. That being said, despite its popularity, there are numerous myths and misconceptions surrounding the internet’s favorite crypto, making it difficult to be fully comprehended by the general public – including prospective investors who have never dealt with cryptocurrencies before. Let’s take a look at what all this means.
Arguably, Bitcoin’s most distinctive feature is its finite supply, keeping it in high demand (at certain intervals). Bitcoin was specifically designed this way by Satoshi Nakamoto (the anonymous pseudonym used by its creators) in an attempt to emulate the finite supply of real-world gold.
The total amount of Bitcoins that can be mined and issued is 21 million. New Bitcoins are added to the supply once every ten or so minutes – or the average amount of time that it takes to create another Bitcoin block. After every 210,000 blocks, the total amount of Bitcoins per block is cut in half. This halving action is by design and helps ensure that the supply is always limited and the demand always remains high.
Although the 21 million mark has not yet been reached – (as of January 2022, 18.9 million Bitcoins had already been issued, with another 2.1 million still to be released) – it is interesting to consider what might happen once it is. In this post, we will closely examine the potential consequences of finally reaching that Bitcoin cap.
Right now, the total amount of Bitcoins issued is not expected ever to reach 21 million, at least not anytime soon. This is due to the Bitcoin network’s use of bit-shift operators, which round decimals down to the closest (and smallest) integer.
This rounding down is critical to the Bitcoin ecosystem. It typically occurs whenever the block reward for producing a new Bitcoin block is halved, and the reward of subsequent blocks is determined. This reward can be expressed in “satoshis,” the smallest unit of measurement in the Bitcoin ecosystem. A satoshi is equal to 0.00000001 Bitcoins – it cannot be split in half.
Because of this, the Bitcoin blockchain – when forced to split a satoshi in half to calculate the new reward – is programmed to round down to the nearest whole integer (via the use of the aforementioned bit-shift operators).
This system of consistently rounding down rewards is the reason it is unlikely that the Bitcoin supply limit will ever be reached. In fact, the total number of Bitcoins issued is likely to fall just shy of 21 million.
Additionally, the total number of new Bitcoins issued per block is cut in half approximately every four years. The final Bitcoin minted is not expected to be generated until at least 2140 – over one hundred years away. To put it into perspective, when Bitcoin was first established, the total number of new Bitcoins minted per block was 50 – as of May 2020, that number had dropped to 6.25.
Despite all this, although 21 million Bitcoins may be minted, the actual number of Bitcoins circulating is likely to be substantially lower. This is true mainly because Bitcoin owners can very quickly lose access to their Bitcoins, whether it is by losing the key to their Bitcoin wallets or by passing away before sharing their wallet details. A study conducted in June 2020 by the forensics firm Chainalysis estimated up to 20% of Bitcoins already issued had been permanently lost.
Despite being over a century away, reaching the Bitcoin supply limit can have adverse effects that should be considered sooner rather than later (this applies doubly to Bitcoin investors, like some of the guys here at Capitalist Exploits). Once the limit on Bitcoins is reached, the internet will issue no more, but they will still be pooled and processed into blocks. Bitcoin miners will be rewarded significantly less but may still earn a profit on processing and transaction fees.
However, there are other ways in which Bitcoin miners may be affected. Their ultimate fate will be decided by how Bitcoin evolves as a cryptocurrency over the next hundred years. For example, if Bitcoin’s blockchain processes many transactions in 2140, Bitcoin miners may still be able to earn a considerable profit.
On the other hand, however, if Bitcoin primarily serves as a store of value instead of being used for daily purchases, the amount that Bitcoin miners will be able to earn will be significantly diminished. However, they may still be able to turn a profit even with the lack of block rewards. One such method is to charge high transaction fees for high-value purchases or larger batches of smaller-value transactions. Superior “Layer 2” blockchains such as the Lightning Network can work in tandem with the Bitcoin blockchain to easily facilitate daily transactions.
Of course, potential investors must also consider the negative repercussions of reaching the Bitcoin supply limit. In particular, two possible adverse outcomes demand consideration.
As silly as it sounds, there is a chance that miners – in the absence of block rewards and a lack of profitability from Bitcoin transactions – will resort to colluding with one another in order to control mining resources, as well as demand extravagant transaction fees.
Alternatively, it is also possible that miners may collude with one another in order to hide or gatekeep new, valid blocks only to release them later as orphan blocks that have yet to be confirmed by the Bitcoin network. This collaboration will increase block processing times, thereby earning more profit for the miners, as well as ensuring that much higher fees are paid for the blocks once they are finally released to the blockchain.
The potential profits investors can earn will essentially be determined – again – by how Bitcoin evolves as a cryptocurrency. So long as demand for Bitcoin continues to mount until 2140, the price should increase exponentially. By then, anyone wishing to purchase Bitcoin will be forced to do so through third parties, allowing sellers to control the price.
Ultimately, however, there is no way to determine whether or not Bitcoin will hold any value at all when 2140 eventually comes around. From an investment standpoint, Bitcoin still signals risky business to potential investors, and for a good reason – it’s one of the most volatile assets on the market.
Of course, things change over time, and Bitcoin likely has plenty of changes in its future. However, at Capitalist Exploits, we believe in investing in low-risk/high-reward assets – and as of right now, Bitcoin fails to meet that criteria.
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Possible investors cannot rigidly determine the effects of reaching the Bitcoin supply limit as of yet. Whether it functions as pocket change or bona fide bars of gold in 2140 is anyone’s guess at this point. All we know is that miners and investors will both be affected somehow.
If you want to keep up with the news surrounding Bitcoin and potential investment opportunities, check out our Insider Newsletter. If you want more, we would also highly recommend signing up for Hedgies Uncut, where you will get to witness all of our raw, unfiltered thoughts as they come to us.