Why 21 million bitcoins and what happens next?

Back in 2008 and for some reason, the mysterious Satoshi Nakamoto established a fixed supply for Bitcoin (BTC): 21 million bitcoins. This means that only 21 million units of BTCs will ever exist. Now, when we say “for some reason”, we’re talking about the number, but not about the limited supply itself.

A limited supply in a currency assures the needed scarcity to make it valuable and avoid inflation in the long term. The more units are of a currency (or product) in existence, the less value it preserves. That’s exactly the reason why fiat currency (like USD or EUR) tends to depreciate when the central banks print more money.

21 million bitcoins ever —and less

中本聪 wanted to avoid those fiat issues in Bitcoin, so, he designed the whole system with a limited supply of spendable coins —from the beginning. The miners will “discover” only 21 million bitcoins ever, and far fewer each time, as the years go by.

In case you didn’t know, there’s a thing called “halving” on the Bitcoin network. It occurs every four years: the block rewards are reduced by 50% (the half) for all miners. From 2009 to 2012, the block reward for the miners was 50 BTC. In November of that last year, the reward was cut to 25 BTC.

Then, in 2016, another split reduced the reward to 12.5 BTC. And we had the last halving in 2020, which means that, currently, the miners can only get 6.25 BTC per verified block. This programmed scarcity will go on until there’s no more BTC to mine. According to the Bitcoin algorithm, we still have 30 halvings ahead (or 120 years) until there are no more newly minted BTC to discover.

A crazy thing about this is that around 90% of the total Bitcoin supply was already mined by 2021. Besides, of those already-minted coins, over 20% have been lost forever. Between de never-spent Satoshi’s stash (around 1 million BTC), numerous lost private keys over the years, and some percentage of intentional coin burn (sent it to non-spendable addresses); it’s very unlikely that about 4 million BTC could be reachable again.  

In the end, they’ll barely have (if there’s luck) around 17 million usable bitcoins around. They, because “we” will be probably dead by the year 2140 —when the new bitcoins run out.

Why 21 million bitcoins and no other number?

That’s our funny question. Why 21 million? Why not 20 million, or 25, 30, 15, or 19? Why did Satoshi choose this exact number for the total supply? We now realize that the limited supply was necessary, but the selection of the amount is something harder to understand. And even, maybe, there’s not a specific reason behind it.

But that’s just partially true because Satoshi talked about this. Luckily, sites like Nakamoto Studies Institute still preserve the emails and other online material shared by the creator of Bitcoin (before its disappearance in 2012), and the developers that worked with him. A specific email shared by the software engineer Mike Hearn (ex-member of Bitcoin核心) seems to answer this question about the 21 million bitcoins. On it, Satoshi talks with Hearn about it.

“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. 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. If Bitcoin remains a small niche, it’ll be worth less per unit than existing currencies. If you imagine it being used for some fraction of world commerce, then there’s only going to be 21 million coins for the whole world, so it would be worth much more per unit.”

He guessed back then that 0.001 BTC could be worth 1 EUR at some point (now is 30 times that, though). So, beyond the mere supply, he also chose to include 8 decimal places for easier distribution in the future. Other than this, we can say that the decision on “21 million bitcoins” was kind of arbitrary.

Some theories

Of course, we also can vote for our favorite theory about this. It’s said that “21” is a flexible number in math, which simplifies computing. This number is the eighth in the Fibonacci sequence, where each number is the sum of the two preceding ones. 此外, it’s also related to the classical casino game Blackjack (which consists in adding up numbers without crossing 21), and the darts game 21 (won with 21 points).

21 is the number of a winning set in table tennis, and the needed points to win in badminton —a very popular sport in England, which is believed to be the origin of Satoshi. It’s also the age of legal adulthood in many countries, including Singapore and the United Arab Emirates.

But many believe that 21 million bitcoins are just a mathematical coincidence. This way, Satoshi would have selected first the average time to add blocks (10 minutes), the reward paid to miners (from 50 BTC), and the halving amount and frequency (33 every 4 years). Thinking about this, a popular post on Stack Exchange explained:

“Calculate the number of blocks per 4-year cycle:

6 blocks per hour
* 24 hours per day
* 365 days per year
* 4 years per cycle
= 210,240
~= 210,000

Sum all the block reward sizes:
50 + 25 + 12.5 + 6.25 + 3.125 + … = 100

Multiply the two:
210,000 * 100 = 21 million.”

When Bitcoin mining stops

As we explained previously, the job of the Bitcoin miners (not all the miners, because not all cryptocurrencies work the same way) won’t be rewarded as it’s today in 120 years. The block rewards will dry out at some moment, and it’ll probably be a difficult change for the users.

Currently and for a while, the juicy rewards have attracted miners worldwide to put their efforts and money (electricity bills, hardware, cooling systems, informatics knowledge, etc.) into the Bitcoin network. It’s because of them that transactions can be sent and received —verified and added to 区块链.

Without miners, even if they’re not “mining” anymore, there are no transactions. The fear here is that, without rewards, there won’t be miners (the activity won’t be profitable). Therefore, the Bitcoin network would stop working. But that’s just the worst-case scenario.

Better scenarios

They won’t have the block rewards anymore, but they’ll still have the transaction fees. Indeed, they already have that too. They earn around $4 million daily from transaction fees only. That’s little compared to the $40 million from block rewards, but it can increase over time if needed.

Satoshi hinted that in his letter to Mike Hearn:

“I don’t anticipate that fees will be needed anytime soon, but if it becomes too burdensome to run a node, it is possible to run a node that only processes transactions that include a transaction fee. The owner of the node would decide the minimum fee they’ll accept. Right now, such a node would get nothing, because nobody includes a fee, but if enough nodes did that, then users would get faster acceptance if they include a fee, or slower if they don’t.”

So, in the future, Bitcoin may get more expensive for users. Although, other theories affirm that sidechains like 闪电网络 could be the solution for day-to-day transactions. Meanwhile, only big and important operations would be held and paid directly on the Bitcoin blockchain. In any case, only time (and tech) can tell.

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