Nearly 90% of all Bitcoin has already been mined — here's how its limited supply has driven up its value

Nearly 90% of all Bitcoin has already been mined — here's how its limited supply has driven up its value
There's a hard limit of the supply of Bitcoin, which makes the the world's oldest cryptocurrency more valuable as more people come on boardBI India
  • Bitcoins' supply has a hard limit of 21 million coins.
  • The creation of new Bitcoins is unlikely after the year 2140.
  • Since its inception in 2009, the value of Bitcoins has grown a million-fold over a decade.
The rarer an item is, the higher its value. Rising demand in the face of limited supply makes for sky high prices. And, there’s only so much of the oldest cryptocurrency in the world, Bitcoin, to go around.

The blockchain-based solution was pitched as a possible store of value by the elusive Satoshi Nakamoto, whose real life identity remains a mystery and who has since disappeared never to be heard from again.

The source code he wrote comes with a unique condition — a hard limit on the number of Bitcoin that can ever be produced. Which means, in the face of rising popularity, the price of cryptocurrency will surge as more people buy into the concept.

Simply put, this limited supply and increasing usage have driven up the value of Bitcoin. By comparison, currency supplied by central governments does not have hard limits, and governments are free to print any number of dollars or rupees they need, provided they do not mind the resulting inflation.

The hard limit of Bitcoin’s supply is set at 21 million coins. Out of this, 18.77 million have already been ‘mined’. That means, 83% of all the Bitcoin that will ever come into existence have already been brought into circulation within 12 years of its creation.

By the early 2030s — a mere decade later — nearly 97% of Bitcoin is expected to be unearthed. The remaining 3% will come into existence over the following century — until 2140.


Why is Bitcoin supply limited?

The supply of newly mined Bitcoin is kept constant by its algorithm, even if the number of miners changes over time.

Only one block — yielding 6.25 Bitcoin as of August 2021 — is created every ten minutes. On average, the blocks created will keep ‘halving’ every four years, until eventually only 0.000000001 Bitcoin are awarded per block ‘mined’ by the year 2140.

Transactions are expected to continue holding up its value, but no new Bitcoin will be created after that. Meanwhile, the year 2140 — 119 years in the future — is further away than the expected life span of most people alive today.

How has this limited supply had an effect on Bitcoin?

Economists are still studying the effects of Bitcoin’s limited supply, and whether it would have the same failings as the ‘ gold standard’. However, we can discuss observations as a lay-person and view a slice of its early years.

2009 – Mining each block yielded 50 Bitcoin, a vast sum in today’s terms. Many of the earliest Bitcoin wallets are lost to time and indifference, as Bitcoin was just one of many cryptocurrency experiments of the time. The first known cryptocurrencies are DigiCash and HashCash, they weren't as decentralized as Bitcoin, with both appearing and losing steam quickly in the 1990s.

2010 – An American programmer traded 10,000 Bitcoin for two Papa John’s pizzas, an indicator of how far value has climbed.

2012 – The first ‘halving’, where each block mined yielded only 25 Bitcoins. The implied reduction in supply drove a large increase in value, taking one Bitcoin to $200 by the end of 2013.

2016 – The second halving, where each block mined yielded 12.5 Bitcoins.

2020 – The third halving, each block mined yielded 6.25 Bitcoins. By this time, one Bitcoin was valued at close to $10,000 and would climb to four times that in a year.

Nearly 90% of all Bitcoin has already been mined — here's how its limited supply has driven up its value
Bitcoin halving events<br>CoinMetrics via Investopedia

As Bitcoin got ‘harder’ to mine, the existing supply of coins rose in value. Today, at an outlet that accepts Bitcoin, a pizza can be bought for 0.00027 Bitcoin — and 10,000 Bitcoins would buy 37 million pizzas.

The role played by Bitcoin HODL enthusiasts

While the rest of the world trades it and a select few manage to buy real goods and services using Bitcoin, the Bitcoin ‘HODL’ enthusiasts may affect its supply the most.

When a sizable portion of Bitcoin remains in wallets for the long term, there are fewer Bitcoins to go around. As a result, more money on crypto exchanges chases fewer available Bitcoins, keeping its value up.

When these large Bitcoin holders — colloquially known as whales in contrast to the ‘small fish’ in the market — add to their hoard or sell a part of their holdings for cash, the value of Bitcoin may change significantly.

The future of a supply-limited Bitcoin

Bitcoin has a hard limit of 21 million coins, of which 18.77 million have already been ‘mined’. For perspective, 83% of all the Bitcoin that will ever exist has already been supplied in just 12 years since its inception. By the early 2030s 97% of Bitcoin would already exist, while the last 3% will come into existence across 110 years until 2140.

If the supply stagnation keeps increasing Bitcoin’s value for a hundred years then, imagine a fun thought experiment – a house worth one Bitcoin today, would be worth half a Bitcoin in ten years, worth one-tenth of a Bitcoin in thirty years, worth 0.05 Bitcoin in forty years and so on. Such a system would not work in the same way we expect with rupees and dollars, which explains both the excitement and worries of what Bitcoin in its current state could do to our economic system.

Can this hard limit be changed?

In theory, the developers of Bitcoin could change how Bitcoin operates and increase the hard limit. That would need the majority of Bitcoin participants to agree - and that would decrease the value of the Bitcoin they hold, so why would they agree to such a change? This explains why such a change isn’t expected to happen anytime soon.

Bitcoin – more of an asset than a currency?

Considering this hard limit brings up an interesting possibility. The absolute supply limit is more of a callback to real estate, than to commodities, equity or gold.

For anyone considering large investments into Bitcoin, note that all asset prices fluctuate, and even an asset ‘as safe as houses’ wasn’t good enough in the recession of 2009.

As a reminder, investment experts discourage ‘YOLO’-ing on a single asset and recommend diversification for safety.

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