How Many Bitcoins Are There? Everything to Know
By Beluga Research September 22, 2023
Summary
- There is a maximum of twenty-one million bitcoins that can ever be created, but until then, new bitcoins are mined every day
- "Mining" is the process of introducing new bitcoins into circulation by solving complex mathematical problems
- The block reward for mining is halved approximately every four years, reducing the rate of new coin creation and contributing to bitcoin's scarcity
- It is estimated that the last bitcoin will be mined around the year 2140, at which point the total supply will reach the maximum of twenty-one million bitcoins
Overview
There is a maximum of twenty-one million bitcoins that can ever be created, but until then, new bitcoins are mined every day. Over nineteen million bitcoins are in circulation. The total supply of bitcoin is estimated to reach the maximum around the year 2140, after which miners will continue to be rewarded with transaction fees, but no new bitcoins will be created.
A Brief History
Bitcoin was created in 2008 by an anonymous person or group using the pseudonym "Satoshi Nakamoto." Nakamoto's white paper, titled Bitcoin: A Peer-to-Peer Electronic Cash System, outlined the principles and mechanics behind this innovative digital currency. The Bitcoin network launched in January 2009, marking a new era in finance.
How Many Bitcoins Are There? Everything to Know
Bitcoin's limited supply distinguishes it from traditional currencies. Unlike fiat currencies, bitcoins are tightly controlled by an algorithm in the Bitcoin protocol. This algorithm ensures there will only ever be twenty-one million bitcoins.
The process of introducing new bitcoins into circulation is called "mining." In this process, "miners," or participants in the Bitcoin network, use powerful computers to solve complex mathematical problems. Successful miners are rewarded with a certain number of bitcoins, incentivizing them to secure the network.
The first halving occurred in November 2012, reducing the block reward to 25 BTC. The second halving took place in July 2016, further reducing the block reward to 12.5 BTC. The most recent halving happened in May 2020, reducing the block reward to 6.25 BTC. The next halving is projected for around 2024, when the block reward will be reduced to 3.125 BTC.
Initially, the block reward for mining a new block on the Bitcoin blockchain was 50 BTC. However, the block reward is halved approximately every four years in an event known as the "halving." This mechanism controls the gradual release of new bitcoins.
The remaining bitcoin not yet in circulation will be gradually mined over the coming years, with the last fraction of a bitcoin expected to be mined around 2140. However, it is important to note that the actual number of bitcoins in circulation may be slightly lower due to lost or inaccessible bitcoins. Irreversible bitcoin transactions can also result in bitcoins being effectively removed from circulation if users lose access to private keys or send bitcoins to an address with no known owner.
Getting Started
To understand bitcoin's supply, it is important to also grasp the decentralized nature of the cryptocurrency. Bitcoin emerged in 2009 as the first decentralized digital currency, operating on a network of computers, called "nodes," that maintain a public ledger called the "blockchain." Bitcoin transactions on the blockchain are transparent and immutable.
Unique Aspects
Bitcoin's supply is governed by distinct rules. Notably, it has a finite supply cap of twenty-one million coins, unlike fiat currencies that can be printed at will. This scarcity is intentional, aiming to establish and maintain value.
Mining plays a crucial role in the process of creating new bitcoins. Miners compete to solve computational math puzzles, with the first to succeed earning newly minted bitcoins. This adds new coins to circulation while ensuring network security.
Initially, mining rewarded 50 BTC per block. But to prevent inflation and maintain scarcity, a mechanism called "halving" was introduced. Roughly every four years, the mining reward is halved, reducing the rate of new coin creation.
As a reminder, the first halving occurred in 2012, reducing the reward to 25 BTC. The second was in 2016, reducing it to 12.5 BTC. In May 2020, the reward was lowered to 6.25 BTC. Halving continues until the reward reaches zero, capping the supply at twenty-one million bitcoins.
Currently, the number of bitcoins in circulation is increasing as miners discover new blocks and earn rewards. However, the rate of new coin creation gradually decreases due to halving. This diminishing issuance rate contributes to bitcoin's scarcity and long-term value.
Advantages
- Scarce and Limited Supply . The total supply of bitcoins is capped at twenty-one million coins. This scarcity creates value and makes bitcoins a finite resource, unlike traditional fiat currencies that can be endlessly printed. The limited supply contributes to bitcoin's appeal as a store of value and potential hedge against inflation.
- Deflationary Nature . With a fixed supply and growing adoption, the demand for bitcoins may increase over time, potentially raising the value. This deflationary aspect may incentivize individuals to hold onto bitcoins, fostering a long-term investment mindset.
- Decentralization . Bitcoin operates on the blockchain. The limited supply ensures that no central authority can manipulate the issuance of new bitcoins or control the overall supply. This decentralized nature enhances transparency, security and eliminates the need for intermediaries like banks.
- Global Accessibility . Bitcoin transcends geographical boundaries and can be accessed by anyone with an internet connection. This accessibility is particularly beneficial for individuals in countries with limited access to traditional banking services. Bitcoin allows for secure and instant transactions, providing financial inclusivity to the unbanked population.
- Divisibility . Each bitcoin is divisible up to eight decimal places, known as a "satoshi." This divisibility enables micro-transactions, allowing users to send and receive even the smallest amounts of value. The ability to transact in fractions of a bitcoin enhances usability and utility.
Disadvantages
- Volatility . Bitcoin's price is highly volatile, which can make it challenging for some individuals to use it as a stable medium of exchange. Price fluctuations can be influenced by factors like market sentiment, regulatory changes and macroeconomic events. High volatility may discourage merchants from accepting bitcoin as payment.
- Scalability . Bitcoin's blockchain has limitations in transaction capacity and scalability. The network can process a limited number of transactions per second compared to traditional payment systems. This limitation leads to congestion and increased transaction fees during periods of high demand, making it less practical for everyday transactions.
- Energy Consumption . Bitcoin mining, the process of creating new bitcoins and validating transactions, requires significant computational power. This mining process consumes a substantial amount of energy, raising concerns about the associated environmental impact. As the network grows, Bitcoin's energy consumption may continue to rise.
- Lack of Regulation . Bitcoin operates outside the control of governments and regulatory bodies due to a decentralized nature. While this offers advantages like censorship resistance, it also introduces risks. The lack of regulation makes it challenging to address issues such as fraud, money laundering and market manipulation, potentially undermining trust in the cryptocurrency.
- Irreversibility of Transactions . Once a bitcoin transaction is confirmed on the blockchain, it becomes irreversible. This feature, while enhancing security, can be problematic if a transaction is made in error or if a user falls victim to scams or fraudulent activities. Unlike traditional financial systems with intermediaries facilitating dispute resolution, bitcoin transactions lack this layer of protection.