Max 21 million Bitcoins – but are we sure?
One of the few certainties in the cryptospace, where volatility reigns and objective and consolidated references are lacking, is that the maximum supply is 21 million Bitcoins, which will only be reached around the year 2140. Well, at least we have time…
It’s an act of faith. But will it be well placed?
Let’s do a minimum recap. Perhaps not everyone is aware that the Bitcoin software is open source written in C++ and can be downloaded from Bitcoin Core :: Download – Bitcoin. Then just compile, launch and voilà the Bitcoin node is up and running. In fact, there are much simpler ways with the knot already beautiful and ready but it is important to understand that there is nothing abstruse and secretive. The heart of our max bid problem is in the 5 lines of code below. All you need to do is change a few parameters and the max offer changes
The parameters are:
- the basic reward (subsidy) for mining a block: 50 Bitcoin;
- the number of blocks processed, 210,000, which triggers the reduction of the correction factor (so-called halving). In fact, every 4 years (starting from 2008) the correction factor is halved. Currently, the correction factor is 1/23=0.125. So mining a block today is no longer rewarded with 50 Bitcoins, as at the beginning, but only with 6.25.From April 24th, new halving, the reward will only be 3,125
- The corrective factor, precisely the halving, i.e. the reduction of the reward every 210,000 blocks.
- The number of halving cycles is set at 32. The contribution to the total, however, decreases geometrically and after the 5th halving we are talking about negligible values. That is, most of it has already been done.
In the table below we tried to simulate the change of one parameter at a time, seeing how the max offer changes both by ideally positioning ourselves at 2008, and by supposing to do so starting from the next halving on April 24th, since most of the Bitcoins have already been undermined. It can be seen that, precisely for this reason, the only way to have a significant impact today would be to intervene on the halving factor, i.e. not to halve it (50%) but for example to reduce it to 80%. Instead, at this point in Bitcoin’s creation, doubling the subsidy would have little impact, “only” one million more at the end of the period.
Sensitivity analysis of the 21 million Bitcoins supply
So what? And our few and confusing certainties? Yes, it would be technically possible, but it would be necessary for at least the so-called 51% (strictly speaking, 50%+1) of the nodes to agree to change the code. Rather complicated considering that today there are around 10k nodes spread all over the world and that every exchange is public, nothing is secret in the Bitcoin world. Here, in fact, the much criticized block validation (consensus) mechanism known as Proof of Work comes into play. PoW is the mechanism that attributes “a vote” to each node, regardless of its weight in the network. Because if it is true that PoW is energy-intensive (but no one mines Bitcoin in the basement anymore at €0.30/KWh and much less will it do so from April onwards) it is also true that the very number of actors involved makes it the safest protocol . Certainly safer than Proof of Stake (PoS) where, at least in principle, whoever weighs more counts more and therefore theoretically can influence the consensus of the network.
And then why would 51% do it? Qui prodest? Because it is clear that, if the theoretical maximum supply of Bitcoin were increased, the value, at least in the immediate future, would collapse and with this the miners’ profit. And let’s not forget that miners, no matter how much they locate data centers where energy is cheaper, have a high electricity bill to pay every month… if something goes wrong they’re all ruined.
The related Generative Artificial Intelligence question is posted in the dedicated gallery: Is Bitcoin’s 21 million maximum supply immutable?