You’ve probably heard that the total number of Bitcoins that will ever exist is 21 million.
You’ve been misinformed.
As the result of a rounding discrepancy (stemming from the fact that a Bitcoin is only divisible into eight decimals), we are unable to endlessly half the block reward, leaving us with 20,999,999.9796 BTC as the maximum number of Bitcoins that will—or can ever—actually exist.
Why “21 million” in the first place?
21 in itself is a triangular number. Triangular numbers count objects arranged in an equilateral triangle and, as such, make computation easier and more efficient. On top of that, the mathematical explanation for “21 million” has been credited to Bitcoin’s deflationary “block halving” protocol that occurs every four years as calculated by a user on StackExchange as below:
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
Sum all the block reward sizes:
50 + 25 + 12.5 + 6.25 + 3.125 + 1.5625 = 100
Multiply the two:
210,000 * 100 = 21 million.
Finally, signing off with: “Economically, because the currency is effectively infinitely divisible, then the precise amount doesn't matter, as long as the limit remains fixed.”
While ‘21 million’ was an “educated guess” for Nakamoto, it was not one that was easily made. “It was a difficult choice because once the network is going it’s locked in and we’re stuck with it,” Nakamoto wrote in an email exchange with early Bitcoin developer Mike Hearn.
Nakamoto’s goal was to choose something akin to that of fiat currencies, but without a crystal ball, it was nearly impossible to do so with any certainty. As such, Nakamoto ended up going for something closer to the middle ground.
Nakamoto imagined both sides of the *ahem* coin, also writing, “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.” Today, Bitcoin is well on its way to achieving the latter.
What is the Bitcoin block halving?
With the next of Bitcoin’s fabled block halvings less than 12 days out, it’s time to start paying attention to what’s about to happen.
While the “halving” sounds like some kind of brutal medieval punishment, it is, in fact, nothing of the sort. The halving refers to Bitcoin’s deflationary protocol and at an elementary level, goes a little something like this:
Bitcoin miners compete to “mine” blocks
Every block mined contains a reward of Bitcoins
The reward from each block (starting at 50 BTC per block) will halve every 210,000 blocks or roughly four years.
This ensures a constant, but ever slowing release of bitcoins into circulation until the “block reward” drops to below 1 satoshi (the lowest denomination of a bitcoin).
You can find the details of the previous and the next three block halvings in the table below:
*The last block reward ever to be mined will bear ‘6,929,999’ on its digital gravestone and is expected to occur around the year 2140 with the block reward dropping below 1 satoshi (the smallest denomination of BTC).
Why does the ‘Bitcoin block halving’ matter?
Scarcity? The laws of supply and demand? You can burn, lose (it is estimated that around 20% or 4 million of all bitcoins are lost forever), but there will never be a single satoshi more than Bitcoin’s supply cap of 20,999,999.9796 BTC. Meanwhile, fiat currencies have infinite minting potential with constant inflation leading to a massive depreciation in purchasing power over time.
The block halving protocol ensures inflation can never occur, and its purchasing power can never diminish. Fewer bitcoins being catapulted into circulation over time, coupled with increasing demand, doesn’t sound like such a bad thing.
In the slightly reinterpreted words of “tincan2” on Bitcointalk.org:
“21 Million Bitcoin
7.5 Billion people
You do the math.”
Before we sign off, it is also noted in Nakamoto’s email with Hearn that Satoshi envisioned a world where 0.001 BTC was equal to that of 1 euro, writing “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.”
As of today, 0.001 BTC will set you back somewhere closer to 8 euros.
We’re not sure what the future HODLs, but we’re excited to find out.