The principle of finite supply was devised by Satoshi Nakamoto in order to control the inflation rate of Bitcoin. The restricted supply gives Bitcoin anti-inflationary properties, but also, this means that Bitcoin is essentially a rare asset because after 21 million BTC are mined, there won’t be any other new BTC. This decision of Satoshi Nakamoto has a great impact on the price of Bitcoin (and the current bull run), and it also is another principle that is duplicated by other cryptocurrencies. But why Satoshi capped the number of BTC to 21 million? Let’s take a look at some of the theories.
The Limited Range of Bitcoin and Bitcoin Halving
Satoshi Nakamoto programmed this event to reduce the block reward of the miners whenever 210,000 blocks are mined. This event usually happens every four years, and it halved the block reward, which was initially set to 50 BTC. After the last halving in 2020, it is 6.25 BTC. This means that each halving slows down the rate at which new BTC comes into existence. So, on top of the fixed number of BTC, the demand increases faster than the supply, which means that Bitcoin remains a scarce asset and its price continues to grow.
In fact, the price never goes back to the previous price point after a halving, and the current bull market phase has resulted in a record-breaking price of $50,000. So, this is why Bitcoin is known as the digital gold of our time because the supply is diminishing (approximately 18 million BTC have been mined) while the market demand is rising.
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M1 Money Supply Replacement Theory
A lot of crypto supporters believe that this is the plausible answer to why Satoshi chose to restrict the number of BTC to 21 million. When Bitcoin was developed in 2008, the entire money supply – M1- was valued at $21 trillion. Satoshi’s vision was for Bitcoin to be a widely used cryptocurrency, eventually replacing fiat currencies. If that were to happen, each Bitcoin would be ultimately worth $1 million. Currently, Bitcoin’s price is $52,635.00, and many feel it is possible to hit $100,000 by 2023. So, the prediction that it will be worth $1 million in the future isn’t that far from the truth, especially if the price continues to grow at this rate.
However, other supporters believe that it wasn’t a conscious choice, but it was a result of a previous decision regarding the supply of BTC (bitcoin halving that happens after 210,000 BTC are mined) and the fixed-rate at which new blocks of transactions are added to the network. On average, a new block of transactions is processed and added every 10 minutes to the network.
Summary Today Bitcoin has the greatest market cap of $600 billion, while its price keeps growing in 2021. What’s more, some predict that it will hit an unprecedented market cap of $1 trillion within 2021. Obviously, Satoshi Nakamoto evidently made a good decision when it limited the supply of BTC because Bitcoin is seen as a safe-haven asset, and there is a surge in the number of investors that want to obtain BTC.