Why are there only 21 million Bitcoin?

One of the many mysteries surrounding the creation of Bitcoin is why the total supply is restricted to 21 million.

There are a number of theories as to why Bitcoin creator, Satoshi Nakomoto, chose 21 million. Maybe they were a big table tennis fan? Maybe they enjoyed blackjack?

The answer, however, is likely simpler. When Satoshi created Bitcoin, the global M1 money supply stood at approximately $21 trillion. In economics, this is the global money supply that includes all physical currency and coins, demand deposits, traveller’s checks, other checkable deposits and negotiable order of withdrawal accounts. Every dollar can be divided into 100 cents, making the total number of pieces of money to exist at around 2,100 trillion.

Similar to cents for a dollar, a satoshi is the smallest unit of Bitcoin. There are 100 million satoshis in each Bitcoin, which means there will only ever be 2,100 trillion satoshis – roughly the same as the global supply in 2009. Based on this, Bitcoin would be well suited to replace all fiat currencies and have the ability to act as a global currency.

This theory aligns with email correspondence between software developer Mike Hearn and Nakamoto. In the email, Satoshi explains that he intended Bitcoin‘s unit prices to eventually align with traditional fiat currencies, so that 0.001 BTC would be worth 1 Euro, for instance.

“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,” Nakamoto said. “If Bitcoin remains a small niche,” he added, “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.”

There are other theories, too. Some believe that Bitcoin‘s 21 million limit was arbitrarily set by Nakamoto when he made two key decisions. That Bitcoin should add new blocks to its blockchain every 10 minutes (on average) and that the reward paid to miners halves every 210,000 blocks – roughly every 4 years.

The initial reward for miners was 50 Bitcoin for each block mined. It was then halved to 25 Bitcoin in 2012, 12.5 Bitcoin in 2016 (the current reward), and the next halving is set to take place in May 2020, when the reward will be reduced to 6.25 Bitcoin. This halving sequence = 50 BTC + 25 BTC + 12.5 BTC + 6.25 BTC… = roughly 100.

By the time the block reward eventually hits 0, the number of coins generated happens to be just under 21 million.

Ultimately though, unless we hear it from Satoshi himself, we’ll never really know for sure. And it doesn’t really matter. The currency is effectively infinitely divisible. This means that the precise amount doesn’t really matter as you can divide it into whatever you can agree with another party, it’s just so long as the limit remains fixed.

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