Understanding Bitcoin’s limited supply and its implications

Bitcoin revolutionized the financial world when it was first introduced in 2009, offering a new perspective on asset ownership in modern society. Backed by blockchain technology, Bitcoin is an incredible asset that guarantees transparent and secure transactions. One of the aspects that distinguishes Bitcoin from other digital assets is its limited supply: there are only 21 million bitcoins in circulation, which plays a massive role in the perceived value of the cryptocurrency.

Assets that aren’t influenced by inflationary pressures appeal to investors who seek to preserve their wealth in the long run. They instill confidence in their viability, suggesting that they are here to stay. As the Bitcoin halving is approaching, the discussion about Bitcoin limited supply becomes even more important, reminding investors of the assets’ scarcity that echoes that of precious metals such as gold. In such a context, it’s not surprising that more investors seek to understand how to buy bitcoin and profit from it in the long run.�

Halving events and their role in ensuring Bitcoin’s scarcity

Bitcoins enter circulation through a process called mining, which requires miners to solve complex puzzles to verify transactions and keep the network robust. As a reward for their efforts, miners earn newly created bitcoins. However, every four years, their reward reduces by half – this is known as halving, an event that decreases the rate at which new bitcoins are introduced and ensures slow growth of Bitcoin’s supply until its 21 million cap is finally reached.

Based on the algorithm of Bitcoin, 33 halvings will occur until the block reward is equal to zero. So far, there have only been three halvings, and the fourth one is scheduled for this year’s April. The first halving occurred in November 2012, marking a significant moment in the crypto world, with the reward being reduced to 25 bitcoins per block. The next halving happened in July 2016, lowering the reward even further to 12.5 bitcoins per block, and the most recent one in May 2020, with the reward reduced to 6.24 bitcoins per block. This April’s halving will reduce the block reward to 3.125 BTC, thus further tightening the supply of the asset.

How many bitcoins are yet to be mined, and what happens once the total supply cap reaches 21 million?

Bitcoin Price Fintechzoom

 Around 19.4 million Bitcoins have been extracted so far, which means over 92% of the available amount is still in circulation. In other words, less than 2 million bitcoins need to be mined in the future until its supply reaches its limit of 21 million.

This milestone is foreseen to happen in 2140, with major implications for the market. During that point, no more bitcoins will be created through the mining process. Since there are only a few bitcoins left to mine, the demand for the asset could increase, thus resulting in its price appreciation.  

It’s evident that miners will be affected when the last bitcoin is mined, and since they are the ones to secure the Bitcoin network, it’s only normal to wonder whether the network’s functionality will be affected when no one will be incentivized to check transactions’ validation. Luckily, Nakamoto, the creator of Bitcoin, didn’t disregard this aspect. Besides newly mined BTCs, miners are also rewarded with transaction fees, so when Bitcoin reaches its limited supply, fees will remain their unique source of income.

Now, it’s obvious that once the last Bitcoin is mined, this will have a strong impact on mining, which could no longer represent a profitable activity for some miners at that point. However, this remains to be seen, as the outcome is strongly tied to the evolution of Bitcoin as a digital asset until that time. Let’s say that in 120 years Bitcoin will be a fully-fledged store of value. In such a scenario, the transaction fees will likely be enough to reward miners for their efforts, considering that they will be more expensive than they are today.

Besides, let’s not forget that Bitcoin’s blockchain is constantly evolving, and its latest developments have enabled it to also host NFTs and just handle cryptocurrency transfers. Therefore, the activity on the network is enhanced, translating into higher fees that users pay to complete a transaction. And with the fee volume increasing, miners are likely to earn more money for contributing to the network.

Obviously, there are no certainties regarding what will happen when Bitcoin finally reaches its supply limit but given that there are still many years left until that time, miners can prepare effectively to ensure they will be on the safe side. It’s worth noting that even if the mining rewards cease at some point, the crypto realm is dynamic, meaning that new solutions emerge constantly. As a result, the post-reward era will likely become more efficient for every network participant.

Altering Bitcoin’s supply cap: is it possible?

Although some Bitcoin critics see it as just open-source software, the truth is that the Bitcoin network is stronger than it seems. Although it may seem like the supply cap of the asset could be altered by changing its functional code, in practice, this is incredibly difficult to achieve, if not impossible.

Bitcoin’s hard cap is safeguarded by its governance model, as well as its incentive, making it resistant to any potential changes. So, those wishing to alter it in any way can’t have any control over the network due to its strong rules.

The bottom line

Bitcoin has had a remarkable journey since it was first introduced. Despite the massive volatility it has faced, the asset succeeded in recovering every time, proving its resilience and its potential and impacting how people perceive assets in the digital age. Although Bitcoin has many excellent features, it is its capped supply that makes it different from the rest of the cryptocurrencies in the market, making it a valuable asset in the long run.

With the next halving event approaching gradually, it’s worth taking the time to understand what Bitcoin’s finite supply really means for the crypto market. As highlighted in the article, there are many implications that everyone engaged in the crypto space should keep in mind.

While it’s hard to forecast with precision what will happen to Bitcoin once all the 21 million coins are mined, the leading cryptocurrency seems to have a bright future, so it’s worth keeping an eye on the trends to see what happens next.

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