One of the major selling points of Bitcoin is the fact that this is a digital currency with a fixed supply cap. Contrary to traditional currencies such as GBP, EUR and USD, there will only be a certain number of Bitcoins in existence at its peak, with no option of over creating more. This fact gives Bitcoin great value from an investment perspective, but is it practical?
21 Million Bitcoins By 2140
When we look at the hard supply cap for Bitcoin, there will only be 21 million coins in existence at its peak. That peak will not be reached before the year 2140, which is still far away in the future. In fact, most of you reading this article right now will never live to see 2140 to begin with unless scientists can come up with a way to double or life expectancy in the next 20 years.
In order to make sure it will take that long until we reach the supply cap, Bitcoin creator Satoshi Nakamoto has come up with a genius plan. A Bitcoin block – which, as you will remember, holds a bunch of transactions waiting to be verified and broadcasted to the network – used to reward the “miners” with 50 Bitcoin in the first few years. With one block being “mined” every 10 minutes, it wouldn’t take that many years to have 21 million BTC in circulation,
However, Satoshi was clever enough to make sure that every so often, the reward per block would halve. This happened in November of 2012, when the block reward dropped from 50 BTC to 25 BTC per block. And it will happen again in 2016, when the Bitcoin block reward will go down to 12.5 BTC per block, slowing down the supply growth.
You may be wondering by now what will happen to the block reward once we have reached the supply cap of 21 million Bitcoins. The answer to that is straightforward: there will no longer be block rewards, yet that doesn’t mean that there will be no incentive to keep the Bitcoin network safe and running.
In our previous article, we talked a bit about transaction fees, and how adding a transaction fee to your money transfer will give it a higher priority to be added to the blockchain. These transaction fees will be used to reward people for keeping the Bitcoin network up and running once all of the coins have been “mined”.
Not Enough Bitcoin To Go Around?
Keeping in mind there will only ever be 21 million Bitcoin in circulation – of which about 14 million are spendable right now – it does raise the question of whether or not this makes Bitcoin financially viable. After all, there are over 6 billion people alive on this planet today, and that number keeps increasing year over year. So how can Bitcoin, with its limited supply, get in the hands of the entire world’s population?
There is a quite simple solution to this problem, which we have discussed before. Every Bitcoin can be divided up to 8 positions to the right of the decimal point. This unit is called a Satoshi, and represents 1/100th million of the Bitcoin value. As such, a Satoshi can become the lowest value of a price denomination in Bitcoin, and it can hold any value we can ever think of.
In our next What is Bitcoin? article, we will talk more about the mining process associated with generating the supply of this digital currency.