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July 23, 2021

Why Is There A Limited Amount Of Bitcoin? (3 Factors To Consider)

Why Is There A Limited Amount Of Bitcoin, is that the question?

There are 3 factors we have to take into consideration when answering this.

What is the effect of the source code?

Why is Bitcoin like digital gold?

Can the amount of Bitcoin be increased?

All right let's read on to see if we can find the answers.

What is the Reason for the Limited Amount of Bitcoin?

Bitcoin's limited supply is because "Nakamoto", its creator installed a hard cap in its source code, which is a strict limit on the number of Bitcoins that would be created. Thousands of nodes validate transactions and reject blocks if they violate network rules, including the hard cap. To alter the amount of bitcoin, the rules & code would have to be changed and all these nodes would have to agree to it too, which is highly unlikely.

1. A Precondition in its Source Code

Precondition in the Source Code

Now there is a precondition in Bitcoin's source code that restricts it to a finite or limited supply.

So when the father of Bitcoin “Satoshi Nakamoto” designed Bitcoin, he put in place a strict limit on how many of them could ever be made.

This is known as the hard cap (Which is a rule that sets a limit on the number of bitcoins that will ever be mined and is encoded in its source code).

So, does anyone have the ability to change the hard cap?

Let’s examine this: First off, bitcoin is a shared, consensus-based network.

Next, you have all the different nodes (basically a node is a computer that runs Bitcoin software).

Then, there are also numerous versions of the Bitcoin source code.

A lot of nodes run the newest versions of Bitcoin Core.

Still, there are also a tremendous amount of nodes that run the older versions.

So, potentially the Bitcoin Core source code could be changed to allow it to have an unlimited amount.

But it would be a lot more challenging to get thousands and thousands of individual nodes to accept these changes.

Which in my eyes would tremendously devalue the whole bitcoin ecosystem and possibly even destroy it altogether.

2. Bitcoin is Like Digital Gold

Bitcoin is like Digital Gold

Bitcoin has some features that are reminiscent of precious metals, particularly gold, especially when it comes to mining and being finite, as mentioned above.

Now, (Investopedia) states, “One can argue that Bitcoin's value is similar to that of precious metals”.

One way that Bitcoin is like gold, is that they both are being used as a store of value.

Since increasing their supply is difficult, if not impossible at some point.

Now the reality that Bitcoin has a limited supply is a crucial element to its value.

Only 21 million Bitcoin are ever going to be mined according to the hard cap.

Although, it’s said that the number will never reach exactly 21 million.

Since the bitcoin network uses bit-shift operators, which round some of the decimal points down to the smallest integer when it comes to halving.

Also, as just mentioned, gold and bitcoin are both mined.

However, gold must be mined from the ground.

Whereas Bitcoin creation is done by miners who do it through computer computations.

Now speaking of Bitcoin miners, they verify transactions and create new blocks.

Although, they do not control the network rules or the network itself.

Nodes (basically computers that run Bitcoin software) reject blocks that violate these rules, and it also validates all the transactions within the block.

That means the miners don’t control the Bitcoin Ruleset.

Also, just like gold is more difficult to mine over time, thanks to halving, so is Bitcoin.

Now, Bitcoin miners are compensated with Bitcoin when a block is successfully verified.

The halving which affects how much the miners are paid occurs approximately every four years.

This means that the amount of Bitcoin that the miners receive for compensation is cut in half (hence the term halving).

For instance, in 2012 the payment was 25 bitcoins.

Then in 2016, it was cut in half to 12.5 bitcoins.

This will extend out every four years until the last Bitcoin is mined.

Which is said, won’t happen until the year 2140.

3. Can Bitcoin's Supply be Increased

Why Is There A Limited Amount Of Bitcoin

The amount of Bitcoins could be increased, hypothetically.

However, there would have to be a collaboration between a few different groups.

Developers would first have to recommend and write code in order to implement the change.

Next, the community would discuss it.

Then if all the changes were agreed upon, they would be installed into the Bitcoin Core.

After that, for the network to transition to the new ruleset as a whole, an activation path would have to be agreed upon by the community.

Also, the nodes and the miners would have to give their support.

Then if the majority of them consented, the change would be activated.

However, any miners and nodes that wouldn’t agree to the changes would operate a minority fork, sticking with the original Bitcoin network.

That would result in the two network forks having to compete for market share.

However, it is inconceivable that anyone would want to implement this change.

Since that would drive down the price of their bitcoin and eliminate one of the main things that make bitcoin a potential store of value, its limited supply.

Video Version: Why Is There A Limited Amount Of Bitcoin? Discover Bitcoins Secret!

So, What Did We Find Out

First, “Nakamoto” put a strict limit on how many Bitcoins could ever be made. This is called the hard cap. Furthermore, the nodes reject blocks if they violate the network rules, and they validate the transactions within the block too. Also, bitcoin is considered to be like gold, only digital. One way it has been compared to gold is that they both have a limited supply. Not only that but they both are mined and have miners. Only, Bitcoin miners don’t carry physical tools to get their job done. One more thing, the Bitcoin supply could be increased, in theory. Although so many parts would have to come together & agree for it to happen. Therefore no one really believes it ever will. It would also result in a fork in the network if it did happen. Then the end result would be, one supply is limited and the other one is unlimited. So, I don’t know why anyone would want to buy the one that wasn’t limited, since that’s basically its bedrock and where a lot of its value comes from. Hence, what would be the incentive to try and change the network in the first place?

2 comments on “Why Is There A Limited Amount Of Bitcoin? (3 Factors To Consider)”

  1. Genuinely informative. Was worried I was going to get a dumbed down rendition with lots of all caps and exclamation marks, typically used go make reading feel more superficially interesting to keep uninteresting people engaged.

    Everything is so dumbed down today because people care more about high engagement, shallow depth it was nice to see it near the top of my search results. Inised duckduckgo though, because google can't be trusted.

  2. Thank You, Steve!

    I really appreciate your comment and opinion!

    Yeah, It's definitely my goal to give you and everyone else helpful information, hopefully in a way that's easy to understand; while trying not to water down the info at the same time.

    It can be a fine line, like walking a tightrope...Haha

    Have a great rest of your night?

    Zach "The Prosperous View"

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