Few questions in the world of cryptocurrency are as mysterious and long-lasting as the explanation for why Bitcoin has a maximum supply cap of 21 million tokens. Satoshi Nakamoto, the elusive founder of Bitcoin, provided clues through personal communication that offer insight into this critical choice. We will explore the insights from Nakamoto’s emails to understand the reasoning behind this interesting limit.

My email correspondence with Satoshi in 2009-2011: https://t.co/jyoX8gXckp

— Martti Malmi (@marttimalmi) February 23, 2024

An Educated Guess: The Genesis of 21 Million Bitcoin Cap

The curtain lifts on Satoshi Nakamoto’s decision-making process through an email exchange with Martii Malmi, an early contributor to Bitcoin’s development. Nakamoto acknowledges that the choice of 21 million as Bitcoin’s supply cap was not randomly chosen but rather an “educated guess.” This figure was carefully selected to strike a balance between aligning Bitcoin’s pricing dynamics with established traditional currencies while adapting to future market uncertainties.

My choice for the number of coins and distribution schedule was an educated guess.  It was a difficult choice, because once the network is going it’s locked in and we’re stuck with it.  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 – Nakamoto 

Nakamoto’s foresight extended beyond mere numerical selection. With a keen eye on scalability and global adoption, limiting Bitcoin to 21 million tokens was a strategic move. This limited supply, representing a fraction of global commerce, ensured that Bitcoin could maintain its value proposition in a changing economic environment.

Nakamoto’s Vision Unveiled

At the core of Nakamoto’s correspondence is a vision of Bitcoin seamlessly integrating into the network of global commerce. The intent was for Bitcoin’s unit prices to eventually mirror those of traditional fiat currencies, fostering ease of adoption and interoperability. Nakamoto envisioned a future where 0.001 BTC could equate to 1 Euro, a concept that resonated with the goal of positioning Bitcoin as a viable currency alternative. It appears that Nakamoto’s forecast was slightly inaccurate. 0.001 BTC is now valued at 47.62 Euro, nearly 11 times their initial illustration.

To accommodate varying price scales, Nakamoto introduced the concept of granularity, enabling flexible adjustments to Bitcoin’s display units. This foresight ensured that as Bitcoin gained traction, its usability wouldn’t be hindered by cumbersome decimal conversions, thereby enhancing its practicality in everyday transactions.

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.  Values are 64-bit integers with 8 decimal places, so 1 coin is represented internally as 100000000.  There’s plenty of granularity if typical prices become small.  For example, if 0.001 is worth 1 Euro, then it might be easier to change where the decimal point is displayed, so if you had 1 Bitcoin it’s now displayed as 1000, and 0.001 is displayed as 1 – Nakamoto  

The Mathematical Tapestry: Unraveling the 21 Million Limit

While Nakamoto provided insight into the rationale behind selecting 21 million as Bitcoin’s supply cap, the mechanics behind this figure remain an intriguing subject. One prevailing theory revolves around dissecting Bitcoin’s distribution model, particularly its block reward system.

By stipulating that new blocks be added to Bitcoin’s blockchain every 10 minutes on average, and that miner rewards halve every four years, Nakamoto unintentionally set the stage for the 21 million cap. Through mathematical speculation, enthusiasts on Stack Exchange have projected the maximum number of Bitcoins that can ever exist, arriving at the iconic figure of 21 million.

Calculate the number of blocks per four year cycle:

6 blocks per hour

* 24 hours per day

* 365 days per year

* 4 years per cycle

= 210,240

~= 210,000

Sum all the block reward sizes:

50 + 25 + 12.5 + 6.25 + 3.125 + … = 100

Multiply the two:

210,000 * 100 = 21 million.

Conclusion

The unveiling of Satoshi Nakamoto’s emails reveals the complex network of decisions supporting Bitcoin’s limited supply. Every aspect, from strategic planning to mathematical luck, adds to the aura of the top cryptocurrency globally. As Bitcoin grows and makes its mark in the digital landscape, the importance of its capped supply limit showcases Nakamoto’s forward-thinking design. Although the origins of 21 million Bitcoin are uncertain, it is evident that its unchangeable supply cap is not merely a numerical threshold, but is essential to its lasting value in the evolving financial landscape.

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Filed under: News - @ January 1, 1970 12:00 am