Why Did Satoshi Nakamoto Limit the Bitcoin Supply to 21 Million?

Attempt to answer this mysterious question concerning the Bitcoin supply limit to 21 Million units.

Why Did Satoshi Nakamoto Limit Bitcoin’s Supply to 21 Million?
Image: Shutterstock

For many people, Bitcoin is simply the new fashionable way to get rich fast. These people are taking a shortcut, which may well play tricks on them in the future.

In life, there are no shortcuts. There is no quick fix for getting rich fast. Everything is the product of hard work and perseverance.

Bitcoin is all about power. Bitcoin is the best savings technology in the world. You place the fruits of your hard work within the Bitcoin network, and it will be protected from the ravages of monetary inflation in a way that is resistant to censorship.

This is currently Bitcoin’s greatest value proposition. As the adoption of Bitcoin by the general public progresses, you will be able to use it as a means of payment in everyday life. However, we are not there yet. That is why I repeat that we are still at the beginning of the Bitcoin revolution.

I have been writing daily about Bitcoin for several years now, sharing my ideas, opinions, and some knowledge.

The most rewarding thing is then to be able to have exchanges with newcomers in this world. It is always interesting to listen to what drives these people to come to the world of Bitcoin. Even better, I listen carefully to the questions they may have and try to provide them with answers as best I can.

One question I am often asked is this:

Why Did Satoshi Nakamoto Limit Bitcoin’s Supply to 21 Million?

This is an extremely recent question to which few people generally provide answers.

This question can be divided into two parts. The first is why Satoshi Nakamoto has limited the supply of Bitcoin. The second is why did he choose the figure of up to 21 million BTC?

Why is Bitcoin supply hard-capped?

I will start by answering the first question, which seems to be the most obvious.

Satoshi Nakamoto understood that the problem with the current system is the total freedom given to central banks to print as much fiat money out of thin air as they deem necessary.

Thus, a few central bankers have far too much power over all the inhabitants of the earth. We should be able to trust them blindly, but history has shown us that this is impossible, as Satoshi Nakamoto rightly pointed out:

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”

You understand here that Satoshi Nakamoto created Bitcoin to address the problem of trust in the current banking system. Bitcoin is a successful attempt to return power to the people regarding money.

The fact that Bitcoin supply is hard-capped has ultra-positive implications for its users

To address the problem of the endless debasement of fiat currencies in the current system, Satoshi Nakamoto has therefore limited the maximum supply of BTC that could be issued.

This limitation was defined within the Bitcoin source code. All nodes running on the network guarantee this essential rule.

This has incredible implications for the fruit of your labor that you secure within the Bitcoin network. If you buy 1 BTC today, you are guaranteed to still own 1 BTC out of 21 million in 10, 20, or 50 years.

With all other fiat currencies, you cannot have this essential guarantee.

Why did Satoshi Nakamoto choose the number 21 million BTC?

The second question was why Satoshi Nakamoto chose the 21 million BTC limit. Indeed, he could have chosen 20 million or 26 million after all.

To begin with, it is interesting to look back at some of Satoshi Nakamoto’s messages on this question:

“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.”

Satoshi Nakamoto then added in an email exchange with the developer Mike Hearn this:

“If Bitcoin remains a small niche, 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.”

Satoshi Nakamoto could therefore have chosen this number of 21 million to foresee a possible alignment with fiat currencies. Thus, 0.001 BTC (1 mBTC) could have been worth $1 at term. This prediction became true in 2013. Today, 0.001 BTC is worth much more than that.

A philosophical explanation is put forward by some

Another hypothesis is related to the global money supply at the time Satoshi Nakamoto created Bitcoin. At that time, the global money supply was $21T. Known as the M1 Money Supply, this number includes the total value of all physical money in the world, including cash, coins, and travelers’ checks.

If we imagine that Bitcoin could one day become the world’s reserve currency, the figure of 21 million units for Bitcoin would have the following equivalence: 1 BTC = $1 million. The Satoshi, the smallest unit of Bitcoin, would then have represented $0.01.

All this, however, remains only conjecture.

In terms of conjectures, other people have imagined a mathematical explanation for this choice. To do so, they have assembled the various parameters of Bitcoin’s programmatic monetary policy.

Others prefer the mathematical logic behind the figure of 21 million

The Bitcoin core software adjusts the difficulty to mine a new block every 10 minutes on average. From this average, 210,000 blocks should be mined during each 4-year cycle. At the end of a cycle, a Halving takes place reducing by half the reward allocated to miners mining a block of transactions correctly.

In the first cycle, the reward was 50 BTC. It was halved to 25 BTC per block mined in 2012. It then dropped to 12.5 BTC in 2016, before dropping to 6.25 BTC after the Halving of May 2020.

By extrapolating this reduction, you will notice that the sum of the block rewards over each 4-year cycle is equal to 100:

50 + 25 + 12.5 + 6.5 + 3.125 + 1.5625 + … = 100

Multiplying this number by the number of blocks mined in each cycle, 210,000, you get the maximum number of BTC that can be put into circulation: 21 million. The Bitcoin supply is 21 million units no matter what.

Final Thoughts

It’s easy for everyone to understand why Bitcoin supply is hard-capped. Satoshi Nakamoto made this choice to make Bitcoin hard money. However, it is harder to know why he chose the figure of up to 21 million BTC.

Some are looking for a philosophical explanation, while others are satisfied with an explanation based on a mathematical model. I will leave you to make your own opinion based on the elements I have just revealed to you.

Indeed, the only person who can know the truth is Satoshi Nakamoto. A mysterious character if ever there was one, Satoshi Nakamoto has decided to never unveil the meaning of the figure of 21 million as well.

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How the 3,219 Words Bitcoin White Paper Changed My Life Forever

Bitcoin White Paper has changed my life
Screenshot of the Bitcoin White Paper by Sylvain Saurel

Life is strange sometimes. I write daily about Bitcoin, money, and economics in general. This allows me to combine two great passions: writing and economics. While writing has always been a passion for me, I must confess that my interest in economics and money did not appear until much later.

To tell you the truth, I wasn’t interested in it at all when I was in high school.

Economics seemed to me to be too complex a field. Looking back, I know now why I felt that way back then. Everything is done with the educational system so that you don’t have the will to discover how the current monetary and financial system works.

Discovering the ugly truth about the current system was a brutal shock

Those who take the step and dare to discover the ugly truth are always shocked. The shock is even brutal. You suddenly ask yourself how it is possible that such an unfair system can exist for 50 years now.

I am talking about a system that favors a tiny minority of people while excluding hundreds of millions of people. I am thinking here of those people on the African continent who are totally excluded from the banking system.

As Westerners, we live in the comfort that does not protect us from all this. For the moment at least. Because the future could be much less cheerful with this current system where central bankers have all the power to print as much money out of thin air as they deem necessary.

I had little interest in these subjects in the past.

Reading the 3,219 words Bitcoin white paper was the first step of an awesome journey

Then one day, in 2014, I came across a white paper with a mysterious title: “Bitcoin: A Peer-to-Peer Electronic Cash System”.

I was intrigued by the fact that the creator of this revolutionary new system had chosen to remain mysterious, but also to offer his system to the world as a magnificent gift for future generations.

I am first and foremost a developer. So what interested me most at the time was the technical side behind the Bitcoin blockchain. I was amazed to see how Satoshi Nakamoto was able to uniquely assemble seven already well-known technological elements to create the first successful implementation of a decentralized digital currency.

The Bitcoin code is open source, so I went to study it carefully.

Then I couldn’t help but implement my own version of the Bitcoin blockchain in the Java programming language. My goal was not to invent a replacement for Bitcoin, but simply to try to reproduce everything I had read in the Bitcoin white paper.

After successfully implementing my own Bitcoin-like blockchain, I didn’t go any further. I have to admit that I didn’t realize at the time the incredible impact that Bitcoin could have on the world of the future.

After limiting myself to the technical side of Bitcoin, I finally opened my eyes to this incredible monetary revolution

I had limited myself to the technical side of Bitcoin. That was a mistake because Bitcoin is first and foremost an incredible monetary revolution. I realized this at the end of 2016 when I returned to take a closer look at Bitcoin.

It was from there that I began to seek a better understanding of the why of Bitcoin. I already had a good understanding of how it works in 2014 by implementing my own version of the Bitcoin Blockchain, but the need for Bitcoin had not yet become clear to me.

So I sought to better understand money, the economy, and how the current system works.

This is something I never thought I would do in my life. However, the 3,219 words of the Bitcoin white paper pushed me to understand all these things that I found too complex before. I made the effort, and today I don’t regret it at all.

Wanting to understand the why of Bitcoin pushed me to learn more about money and economics

By reading books on all these subjects, I really understood how the current system was flawed. I could also understand why it could not be fixed. The people in charge of this system simply don’t have the will. The current system benefits them so much, that changing it would be a real folly from their point of view.

Little by little, I realized that Bitcoin was the solution. The best solution for the people to take back control of their money. An inclusive solution where everyone has the same opportunities. Whether you’re American or Nigerian, Bitcoin doesn’t care.

All you need to buy it is a smartphone and an Internet connection.

Accessible to all, Bitcoin is a revolution for millions of people excluded from the current system. A plan A for their daily lives. It’s no coincidence that Bitcoin is used in countries that are emerging or under authoritarian regimes.

Understanding the flaws in the current system is the key to understanding the importance of Bitcoin for the future

My story with Bitcoin is probably not unique. I know many other people who followed the same path before becoming Bitcoiners. From the solution, we sought to better understand the issues it sought to address.

To fully understand the importance of Bitcoin to the world of the future, you can’t just study the Bitcoin system. You have to go beyond that and study the current system. If you don’t understand the flaws in this doomed system, you won’t realize the inevitability of Bitcoin for the future.

Bitcoin has greatly changed my life by teaching me to develop critical thinking skills and patience. A currency revolution is never instantaneous. To benefit from it, you have to be able to be patient by supporting Bitcoin day in and day out.

This is what I do by sharing my knowledge and opinions every day via articles.

I have been able to meet people with exciting ideas. All of this has made me grow on all levels. If someone had told me all this the day I read the 3,219 words of the Bitcoin white paper, I probably wouldn’t have believed it. But it’s true: Bitcoin has radically changed my life on every level.

Final Thoughts

By realizing the importance of taking back the power over the fruits of my labor, Bitcoin has allowed me to start building a better future for myself and my family. That’s what Bitcoin was designed to do: to empower you as an individual.

Bitcoin is all about power, not money.

If you still haven’t read the Bitcoin white paper, I have only one piece of advice for you: do it. Don’t be afraid of the technical passages, and focus on the essential ideas to get started. By daring to do so, I am sure you will take the first step on a fascinating journey that will change your life forever.

The Magic of the Bitcoin Protocol Lies in the Perfect Combination of These 7 Technological Elements

The Magic of the Bitcoin Protocol Lies in the Perfect Combination of These 7 Technological Elements
Image: Pixabay

All Bitcoiners keep repeating that Bitcoin is a true monetary revolution. I am in the same case since I keep repeating it over and over again. We cannot do otherwise, since it is obvious from our point of view.

If Bitcoin’s domination is based on its superior monetary attributes, it is its technology that gives credibility to these attributes.

The Bitcoin protocol is indeed what allows tens of millions of users to have absolute confidence in Bitcoin. In September 2020, Bitcoin passed the 100 million user mark. In February 2021, Bitcoin surpassed the $1 trillion market cap for the first time.

All this would not have been possible without the genius of Satoshi Nakamoto in designing the Bitcoin system.

However, contrary to what some people believe, the magic of the Bitcoin protocol is due to the assembly of different technological elements already proven. If you take the time to read the Bitcoin white paper, you will see that the key elements that are at the heart of the system have been known for a long time.

The Bitcoin protocol is based on private/public keys and Merkle trees

The private/public keys used at the heart of the Bitcoin protocol are based on the Elliptic Curve Digital Signature Algorithm (ECDSA). More specifically, Bitcoin uses a special curve called secp256k1.

This curve has an order of 256 bits, taking 256 bits as input, and returning an integer of 256 bits as output.

To represent the transaction data of a block, the Bitcoin protocol relies on a particular data structure called Merkle Tree. This is a tree in which each leaf node is labeled with a block of data, and each non-leaf node is labeled with a cryptographic hash of the labels of its child nodes:

Merkle Tree sample on the Bitcoin Blockchain
Merkle Tree sample on the Bitcoin Blockchain

The purpose here is to ensure that data blocks received by other nodes in the Bitcoin network are received without damage or alteration. It is even possible to verify that other nodes are not lying by trying to send false data blocks.

Cryptographic hash functions are used ingeniously in the Bitcoin protocol

For the cryptographic hash function, Satoshi Nakamoto has relied on the SHA-256 algorithm, also known for a long time.

A cryptographic hash function will take data as an input and produce an output of fixed length. This output is usually represented by a string of characters in hexadecimal format.

These functions are deterministic, which means that if you input the same string of characters several times for a given function, you will get the same output each time. The following illustration gives a good visual overview of what a cryptographic hash function is:

Cryptographic hash function
Cryptographic hash function

More importantly, a cryptographic hash function has the distinct advantage of being a one-way function. It can therefore be easily computed but very difficult to reverse. These functions are often referred to as “trapdoor functions”:

A cryptographic hash function is a one-way function
A cryptographic hash function is a one-way function

While calculating the hash of a string with a cryptographic hash function is very fast, the reverse calculation is very complex and time-consuming.

Indeed, there is nothing more efficient than a stupid and mean systematic approach during which it will be necessary to test all possible combinations at the input of the hash function to find the same output.

The Proof-Of-Work algorithm uses the properties of the cryptographic hash functions

The Proof-Of-Work algorithm relies on cryptographic hash functions to work.

Given a certain difficulty, the Bitcoin network miner must find a hash for the block starting with a given number of zeros. As shown in the previous diagram, the miner has the result of f(x) starting with a certain number of zeros.

He then has to find the value x that allows him to reach this result. To do this, at each attempt, he increments by one an integer variable called nonce within the block being mined.

The more the difficulty increases, the more difficult it becomes. The greater the miners’ computing power, the more possible values they can test per second. They maximize their chance of finding the right x value, and thus of getting the Bitcoin reward for correctly adding a new block to the Bitcoin Blockchain.

The mining difficulty is automatically adjusted every 2,016 mined blocks

This is where Satoshi Nakamoto thought of everything.

He planned an automatic difficulty adjustment to mine new blocks every 2,016 mined blocks. This corresponds to an adjustment every two weeks since on average 144 blocks are mined every day. This adjustment keeps the predictability of new BTC issuance over time.

As the Hash Rate available on the Bitcoin network increases, the difficulty increases in relation to the next adjustment. When the Hash Rate drops, the difficulty is adjusted downwards.

To give you an idea, here is the evolution of the difficulty on the Bitcoin network for mining a block:

Evolution of the difficulty on the Bitcoin network
Evolution of the difficulty on the Bitcoin network

As you can see, this difficulty continues to increase over time. Bitcoin network is therefore a little more secure every day than it was the day before.

The reward for miners is divided by two for every 210,000 blocks mined and tends towards zero over time

Another key technological element of the Bitcoin protocol is the automatic halving of the Bitcoin reward every 210,000 mined blocks. This gives Bitcoin a quantitative hardening type of monetary policy.

The last Halving took place in May 2020. At each Halving, a supply shock occurs in the Bitcoin world. The supply of newly issued Bitcoins is halved, while the maximum supply remains fixed at 21 million units. Together with a constantly increasing demand for Bitcoin, this produces a significant increase in the price of Bitcoin.

Another important element that I haven’t mentioned so far is the timestamping of the Bitcoin Blockchain blocks.

Each block contains a date in Unix format. This is part of the hash of a block and makes it more difficult to manipulate the Bitcoin Blockchain. Indeed, a timestamp is considered valid only if it is larger than the median timestamp of the previous 11 blocks and smaller than the adjusted network time + 2 hours.

“Network-adjusted time” is the median of the timestamps returned by all nodes connected to your node. As a result block timestamps are not exactly accurate, and they do not need to be. Block times are accurate only to within an hour or two.

The final touch is the networking of the Bitcoin system in P2P mode

Finally, all this is networked via a P2P architecture. Bitcoin is a completely decentralized network. Its Blockchain is permissionless and trustless. This means that anyone can become a node in the Bitcoin network. This is something I urge you to do to really take control of your money.

By putting your savings into the Bitcoin network, you become your own bank branch.

By running your own node on the Bitcoin network, you become a bank on your own. This is the highest level of sovereignty that everyone should aim for in the Bitcoin system.

Final Thoughts

As I have shown you, the magic of Bitcoin lies in the unique assembly of all those technological elements that existed before. However, no one had ever thought of combining them in this way.

This is where Satoshi Nakamoto’s genius lay.

It is thanks to this design that the Bitcoin system became the first successful implementation of a digital currency. If Bitcoin is a technological disruption in its own right, it is above all its implementation to give credibility to its monetary attributes that should be remembered here.

The next time you decide to put the fruits of your labor into the Bitcoin network, you will have a better understanding of why it is completely safe to use the Bitcoin protocol. For the rest, I advise you to go further by discovering the Ten Commandments of Bitcoin.

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