Financial Background: The Total Circulation and Supply of Bitcoin

There are about 18.8 million Bitcoins in circulation. This number increases as more Bitcoin transactions are verified or mined. That said, this supply is not unlimited. The total Bitcoin supply is limited to 21 million Bitcoin, meaning that about 89.7% of Bitcoins are already mined. After 21 million Bitcoin are mined, the supply will be exhausted. This will occur in 2140. When Nakamoto created Bitcoin, he included a 21 million Bitcoin limit on its supply. This “hard cap” is embedded in Bitcoin’s source code and is automatically enforced by nodes. Every four years, Bitcoin undergoes a “halving” event, which reduces the number of Bitcoins rewarded for every block. The last halving occurred on May 11, 2020 and reduced the mining reward from 12.5 Bitcoins to 6.25 Bitcoins. The next halving will occur in the Spring 2024 and will reduce the reward to 3.125 Bitcoins. In other words, halving makes it harder for less and less Bitcoins to be mined.

As mentioned, a currency is valuable because it is scare. But Bitcoin is more than that; it operates as a deflationary currency. Consider fiat currencies. The U.S. dollar is issued by the government. As the money supply increases, inflation occurs, and society sees a decrease in their purchasing power. The more the government prints money, the more the value of the dollar will decrease. Just think about what $100 could have bought you two decades ago compared to today, and you will immediately see inflation in action. Bitcoin does not follow this pattern. Its supply has a definite limit. This way, Bitcoin is better analogized to gold. Gold cannot be made or created. There is only a finite amount of gold in the earth. As more gold is mined, it will be harder to find other gold locations and the issuance of gold into the economy will therefore slowly decrease. This scarcity increases the demand for gold, just like Bitcoin.

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