Learn
Claudio Koller ยท 3/9/2023

Why is Bitcoin capped at 21 Million?

Unlike government fiat currencies, bitcoin is digitally limited. But why exactly is bitcoin limited to 21 million units?

Bitcoin Whitepaper

The limit of bitcoin is not mentioned in the whitepaper, however Satoshi Nakamoto, the inventor of bitcoin, points out the limit with the following statement:

The total circulation will be 21,000,000 coins. It will be distributed to network nodes as they form blocks, with the amount halved every four years.

First 4 years: 10.500.000 Coins next 4 years: 5.250.000 Coins next 4 years: 2.625.000 Coins next 4 years: 1.312.500 Coins etc.

When that expires, the system can support transaction fees if needed. It is based on open competition, and there will probably always be nodes willing to process transactions for free.

Satoshi Nakamoto, January 8, 2009

What is Bitcoin Halving?

When miners mine bitcoin, they receive a reward for doing so, called a block reward. This is made up of transaction fees and block subsidy.

In the first 4 years, bitcoin miners received 50 bitcoin per block for this. However, every 210,000 blocks, or the equivalent of every four years, Bitcoin halving occurs. The block subsidy for the Bitcoin mined is halved in each case.

So far, there have been the following bitcoin halvings:

  • November 2012: Reduction to 25 bitcoin per block.
  • July 2016: Reduction to 12.5 bitcoin per block
  • May 2020: reduction to 6.25 bitcoin per block

Conclusion

Probably not the 21 million bitcoin, but the 50 bitcoin per block was at the beginning in the consideration. Because the 21 million is also the mathematical consequence. It is obtained by multiplying the number of blocks produced (210,000 per halving period) by the sum of the halving rewards (50 bitcoin+ 25 bitcoin+ 12.5 bitcoin + 6.25 bitcoin + ...0 โ‰ˆ 100).

Spread the knowledge

If you liked this content, make sure to share it with your friends. If you think there's something missing here, send us a quick message.

Mail

Congratulations! ๐Ÿฅณ

Your bank payment arrived and was successfully exchanged into bitcoin.

Your bitcoin are soon on the way to your Bitcoin wallet.

Bitcoin purchase

Bank payment:EUR 100.00

Purchased:BTC 0.00435850

Exchange rate:EUR 22,599.90 / BTC