Why is Bitcoin’s supply limit set to 21 million?

Why is Bitcoin’s supply limit set to 21 million?

Like many other cryptocurrencies, Bitcoin (BTC) was designed around the principle of a finite supply. That means there’s a fixed upper limit on how many Bitcoin can ever come into existence.

In Bitcoin’s case, the upper limit was set by its creator, Satoshi Nakamoto, at exactly 21 million. For other cryptocurrencies, this cap can vary considerably—ranging from as low as 18.9 million for Monero (XMR) and Dash to as high as 100 billion for the likes of XRP and Tron (TRX).

The money supply replacement theory

By limiting its maximum supply, and slowing the rate at which new Bitcoin come into existence, Satoshi intended each individual Bitcoin unit (known as a satoshi) to appreciate in value over time.

According to an email purportedly shared between Nakamoto and Bitcoin Core contributor Mike Hearn, Satoshi reasoned that if 21 million coins were to be used by some fraction of the world economy, 0.001 BTC (1 mBTC) could be worth around €1 (AUD1.62). This prediction came true back in 2013, when Bitcoin first broke through the €1,000 price point; today, each mBTC is currently worth closer to €8.25 (AUD13.40).

Although Satoshi compares the price of Bitcoin to the Euro in his email, some simple mathematics indicates he may have had a much grander vision for Bitcoin—better explaining why the 21 million maximum figure was chosen.

At the time of Bitcoin’s creation, the entire world’s money supply stood at approximately USD$21 trillion. This figure, known as the M1 money supply, is made up of the total value of all the physical money in the world, including cash, coins, travelers’ checks, and more.

If Bitcoin were to grow to become the single world currency—replacing all those that the M1 figure is comprised of—then each BTC would be worth USD$1 million. Because there are 100 million satoshi in each Bitcoin, this would place the value of each satoshi at USD$0.01.

That fact that these numbers align so closely would be a remarkable coincidence, if it’s not intentional.

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Source: Why is Bitcoin’s supply limit set to 21 million? – Decrypt