March 8, 2023
10 min read
Bitcoin revolutionized financial systems as we know them. Its decentralized nature can free the world from third parties" influence on their transactions. If you"ve been following the crypto world, you likely know that Bitcoin is worth a lot of money.
Money as we know it is somewhat infinite. Governments can always print more money, but that would cause inflation. Bitcoin isn't infinite, though. It has a limit for the tokens that can ever come into circulation.
What does that mean, though? And how does this limit affect you? Read along as I take you on a journey through all things Bitcoin. That way, you can better see what Bitcoin's limit actually does.
First, though, let's see why Bitcoin is the giant it is today.
Humankind often reflects on the events that marked the greatest transitions in technological culture. The printing press invention comes to mind. Another is the computer, and more recently, the early development of the internet. Almost certainly, Bitcoin's invention is incredibly significant in history.
In 2008, an anonymous user published a research paper on Bitcoin to a cryptography mailing list. The paper's title was: “Bitcoin: a Peer-to-Peer Electronic Cash System.” The paper described the Bitcoin network as “a system for electronic transactions without relying on trust.” Several months later, Satoshi Nakamoto mined the first Bitcoin block. Satoshi Nakamoto is the pseudonym for the original paper's author.
Since then, Bitcoin has nearly transformed into a household name. Even so, most people don't realize Bitcoin's full potential. They simply associate Bitcoin as an alternative to the financial system. They don't necessarily understand the network's function and the problems it can solve. In the end, Bitcoin is revolutionary for more reasons than simply being a currency.
Let's briefly explore some of Bitcoin's innovative features.
As the first cryptocurrency, Bitcoin is often emblematic of the industry itself. In fact, many of Bitcoin's features are also a foundation for other projects" functions. This includes the Bitcoin network's method of validating transactions, known as Proof-of-Work (PoW). Many blockchain projects, most notably Ethereum, use this mechanism. PoW is a cornerstone of decentralization. We'll explore this function later in the article.
The Bitcoin network is essentially a trustless system. People don't have to rely on a third party: trust is built into the system itself. Two people can make a transaction from anywhere in the world. The nodes on the network then verify that transaction. Cryptographic hashes determine the accounts involved, the quantity of Bitcoin (BTC), and other details related to the transaction. The hashes are unique strings of characters. The hash's specificity allows nodes to recognize the transaction's owners. They"re also able to ensure that funds aren't double-spent.
In the past few years, Bitcoin has become increasingly popular. People are learning how easy it is to transact with Bitcoin. You can send Bitcoins to anyone in the world, with little variation in time or cost. Without Bitcoin, the same transaction would require many third parties, like banks and credit card companies. We know that hassle all too well! An overseas transaction could take days, while sending money with Bitcoin would take minutes.
Bitcoin is also popular because it can hold value. The number of Bitcoins available in the world is finite. The currency isn't subject to inflation through the creation of new Bitcoins. In the next section, we'll explore the meaning behind Bitcoin's fixed supply.
Currently, 18.9 million Bitcoins are in existence. That number will continue to rise until every Bitcoin is available. Each day, the mining process introduces about 900 Bitcoins to the world. Mining creates new Bitcoins, but it also validates transactions. We'll explore the concept more later in the article! The highest number of Bitcoins possible is 21 million. That's simply the number that Satoshi Nakamoto chose in the network's creation.
Two main theories could explain why Satoshi Nakamoto chose the number 21 million. The first is speculates that Bitcoin could one day become a dominant money supply. In a famous email, Satoshi explained that if Bitcoin were to gain widespread adoption, a single unit (in this case, .001 BTC) would be worth around €1.
In 2013, the prediction came true! Each Bitcoin had a €1,000 value. Considering Bitcoin's current value, one unit is now worth around €35. It doesn't matter if you're Bitcoin Maximalist, the next goal of €100 for a unit is easily in sight. Perhaps €.01 for a satoshi (.00000001) is another future goal. For that to occur, a single Bitcoin would be worth €1 million and the market cap would be around €20 trillion.
We'll never have more than 21 million Bitcoins. People often compare it to gold, in the sense that each has a fixed quantity. The gold available on Earth isn't unlimited. Similarly, we'll eventually mine the last Bitcoin, or reach the end of the supply. Once that happens, 1 Bitcoin's value will rise exponentially. Just like gold, Bitcoin is also a statement against the banking system's instability.
For a better understanding of why Bitcoin is special, let's revisit the US financial system.
The world's reserve currency, the US dollar, is inflationary. As the supply increases, the value of a single dollar goes down. The Federal Reserve will regularly create money to contribute to the economy. Modern banks also use a system called fractional reserve banking. They only need to keep a portion of someone's deposit in liquid currency. Theoretically, that frees up capital. That said, it makes every transaction require the creation of new money. Both aspects of the modern banking system increase the level of financial inflation.
One dollar's purchasing power today is far less than it was in the past. We can see this from the price of staple goods, including basic food items and gasoline. That should also be true for precious metals. Yet, economies manipulate the price of gold and silver to disguise the level of inflation taking place. Bitcoin's price is less easily controlled. That's why Bitcoin experiences such remarkable fluctuations in value. Its price reflects the market's energy, scarcity, and the significant inflation occurring in the global financial systems.
Again, many people believe that Bitcoin's creation was a response to modern banking's instability. The first block on the network was even encoded with a reference to the financial crisis at the time. It read, “The Times Jan/03/2009 Chancellor on brink of second bailout for banks.” This was from a newspaper headline, published on the same day as the first mined Bitcoin block. These issues are still prevalent. In fact, the last decade has only exaggerated them.
Gold has played an important role in human history. The precious metal has many qualities that make it unique. Gold doesn't corrode, unlike most other metals. It's not difficult to melt and press into coins. Gold is also often passed between generations as a store of value.
A gold standard is when physical gold backs a monetary system. A shared agreement could allow a currency's exchange for a fixed amount of gold. The first gold standard emerged in London in 1821. A few decades later, in 1876, the United States would adopt a gold standard. This was likely because of the great amount of gold discovered in North America. The gold standard would remain in the United States until 1933. Globally, the US dollar would replace gold as the dominant reserve currency.
From 1800 to 1933, the US dollar's buying power was fairly consistent. In the decades to follow, though, the dollar would take a major beating. Today's dollar, less than a century ago, would be worth more than $22. Since gold isn't in the picture anymore, creating new money isn't facing as many limitations.
Many people believe that gold is undervalued. As mentioned earlier, it doesn't seem to reflect inflation in the same way as other household goods. They believe that gold's price should look similar to Bitcoin.Both assets are basically a fixed supply and a hedge against the US dollar. That's one reason why the same people support gold and Bitcoin alike.
Knowing that, let's discuss Bitcoin mining and how that affects how many Bitcoins are in circulation.
Bitcoin becomes available through a process called mining. Different nodes compete to solve a difficult math equation. The nodes that solve the equation the fastest receive small portions of Bitcoin as a reward. Mining introduces Bitcoins to the circulating supply. That's also the network's method of validating transactions. This process incentivizes nodes to contribute to the system's regular functioning. That's the Proof-of-Work mechanism.
Satoshi Nakamoto mined the first Bitcoin in early 2009. By mining the genesis block of Bitcoin (block number 0), he introduced the Bitcoin network into existence. The initial reward for that block was 50 Bitcoins. Today, that"d be worth more than $1.5 million.
One block has a limit for the number of transactions it can support. A transaction on the Bitcoin network is approximately 250 bytes. Each block in the chain needs to be 1MB or smaller. That's around 4,000 transactions on each block. Depending on the number of transactions, blocks on the chain are sometimes smaller.
Many factors could impact the amount of traffic on the blockchain. These include notable announcements, a country's new regulations on Bitcoin's use, or simply the time of year. Did you know that people are less likely to send or receive Bitcoin during holidays and weekends?
You can explore the entire blockchain on Bitcoin's official website. The blockchain is all public information, so you can also see the transactions. That's an interesting way to observe historical trends in Bitcoin's use.
Due to the overwhelming number of transactions across the network, the reward for mining a single block often goes to different nodes. Today, the number of nodes performing the work of validating transactions is far greater than it was in Bitcoin's early days. That's one reason why the rewards today are usually smaller for nodes on the network. Another reason is the halving process encoded into the original blockchain. Let's take a look at this halving process and what it means.
The network cuts miners" block reward in half after every 210,000 blocks mined. That's what we know as Bitcoin's halving event. Ensuring regular transaction times, this translates to roughly every four years.
Since the blockchain's beginning, the Bitcoin network has experienced three halving events. The halving process causes an artificial price invasion. In turn, a boom and bust in Bitcoin's price followed each halving event. In each instance, that halves the rate at which BTC becomes available. Each halving signals Bitcoin's growing unavailability. After 210,000 blocks mined, we have fewer Bitcoins left to discover.
As previously mentioned, the reward for mining the network's first block was 50 Bitcoins. The first halving event cut the reward in half to 25 BTC. The next event halved the rewards to 12.5 BTC. In May 2020, the most recent halving event cut rewards to 6.25 BTC. This process is set to continue until we have no more Bitcoins left to mine. At the current rate, every Bitcoin will be in circulation by the year 2140. When that happens, miners will simply receive transaction fees as a reward.
The second theory for the total number of Bitcoins has to do with the halving cycle. The 21 million quantity ensures a regular timeframe for mined blocks. That's approximately 10 minutes for each block. The code adjusts the mining difficulty to ensure this same timeframe. The timing is consistent, even when blocks differ in size. Each four-year cycle consistently has approximately 210,000 mined blocks.
Yet, even after the last Bitcoin is mined, many of the Bitcoins in circulation still wouldn't be available. That's because they got lost or even stolen! In the next section, we'll explore both circumstances, as they relate to Bitcoin.
Lost private keys often increase the unobtainable Bitcoins. If anyone loses access to their private key or recovery phrase, the corresponding wallet is basically lost forever. Simply viewing the information online, we can't definitively tell if someone is locked out of their wallet or they"re just a master holder. Still, it takes a great level of discipline to leave a Bitcoin (let alone thousands) completely untouched during the length of a bull market.
Many Bitcoins in circulation are simply lost forever. They may be inside inaccessible wallets. Bitcoin's intense security is built into the network. For many people, decentralized information is their downfall (at least in terms of their locked BTC), as it's impossible to track down missing information. The blockchain doesn't have a 'forgot password" option.
In the last five years, 20% of the Bitcoins in existence haven't moved from their wallets. These include the original coins mined by Satoshi Nakamoto. The 50 Bitcoins block reward certainly added up in Bitcoin's early history. A wallet considered to belong to Satoshi Nakamoto remains untouched. It contains more than a million BTC–that's more than 5% of the current supply.
We have many notable examples of investors losing access to their digital wallets. A man in the United Kingdom accidentally discarded a hard drive that contained the private key for a wallet holding 7,500 BTC. He's currently trying to convince the city to allow him to rummage the landfill to see if he can find it. The city will probably not approve his request, even though he's offered 25% of the Bitcoins" value for the city's COVID relief fund. Basically, his fortune is gone. What an awful nightmare–especially for someone who saw Bitcoin's potential long before it gained mainstream attention.
In the end, we'll never know exactly how many Bitcoins we lost forever. Maybe the Bitcoins aren't even lost, to begin with. The tokens may be inside holders" wallets: no price will convince them to withdraw or transfer their precious coins. Yet, we notice a pattern of sleeping wallets coming back to life. That happens when Bitcoin's price breaks new records. Since October 2020, nearly $7 billion in previously lost Bitcoin has returned to circulation.
Investors also send Bitcoins to a burn address. These are unusable wallets, and no one can access their contents. Sending Bitcoins to a burn address removes the coins from circulation forever.
When someone intentionally loses a Bitcoin, its value is redistributed to other tokens in the network. In a letter, Satoshi Nakamoto referenced lost coins as a “donation to everyone.” Bitcoin's fixed supply creates scarcity.That gives the token tremendous value. Once all 21 million Bitcoins are available, the number won't rise ever again.
It's unlikely that we'll ever see these Bitcoins again. Still, we may find some Bitcoins lost to theft! Let's take a look at some instances of stolen Bitcoin.
Some Bitcoins can be lost to theft. Unfortunately, no one guarantees we can ever get these back, but that's still possible. Let's take a look at 3 examples of Bitcoin thefts:
Mt. Gox is a Bitcoin exchange in Tokyo, Japan. In 2014, Mt. Gox suspended trading and totally closed its website. The company had discovered that more than 850,000 Bitcoins had disappeared, most likely stolen. The stolen Bitcoins belonged to customers and the company itself.
At the time, the lost Bitcoins were valued at more than $400 million. It was later discovered that the thief stole all the missing Bitcoins right out of the Mt. Gox hot cryptocurrency wallet over time, beginning in late 2011. Hot wallets are more susceptible to theft, as they maintain a constant connection to the internet. Today, the stolen tokens would be worth more than $16 billion.
Bitfinex is a U.S Virgin Islands-based exchange. In August 2016, nearly 120,000 Bitcoins were stolen from Bitfinex. After the theft, Bitfinex refunded users whose assets were stolen. All the stolen money went to a single wallet. That said, retrieving the stolen Bitcoins wasn't as simple as withdrawing the amount from the hacker's account. Bitfinex immediately notified other exchanges and blocklisted the suspected wallet.
Bitfinex directed a tremendous amount of energy to return the missing assets. In August 2020, exactly four years after the heist, the company made a public statement. They offered a percentage of the stolen Bitcoins to reward anyone that helps return them to Bitfinex.
Knowing how the perpetrator stole the Bitcoins is just as important as retrieving them. If the thieves would explain the process, Bitfinex could use the information to fortify their exchange from future attacks.
In early February, the public learned that federal authorities retrieved $3.6 billion from the Bitfinex hack. Officials arrested a young couple in New York for laundering money. The blockchain had recorded thousands of transactions tracing back to the couple's wallet. At that, authorities seized more than 94,000 Bitcoins!
As cryptocurrency has grown mainstream, federal agencies have increased their effort to confront illegal activity in the crypto space. Law enforcement is using more sophisticated blockchain analytic tools. Security agencies can follow and source every transaction from a wallet. The Bitfinex theft proved that stealing Bitcoins isn't as simple as depositing the funds into your wallet.
Recently, more than $610 million was stolen from the Poly Network. That wasn't just in Bitcoin, it included different cryptocurrencies, too. Throughout the following week, the hacker returned the entire amount to the Poly Network. He claimed he was trying to “prove a point” regarding the exchange's security. Funnily enough, the Poly Network actually offered that person a job!
$1.9 billion in cryptocurrency was stolen in 2020. That's down from $4.5 billion in 2019. That's impressive considering the total transaction volume had increased since the previous year. Exchanges are placing value in the improvement of digital security. That's why, we can assume large-scale thefts like Mt. Gox and Bitfinex will become relics of the past. Still, cybercriminals would likely create new methods to steal assets from online exchanges.
Bitcoin theft doesn't only take place on exchanges, private wallets are susceptible, too! Still, it's far less dangerous to store your Bitcoins in a wallet. If you're using a digital wallet, be careful not to share your secret passphrase. Be careful to never share your private key either! Atomic Wallet makes it easy to keep your Bitcoins (and other digital assets) safe.
Here's 6 steps you can follow to get started with the Atomic Wallet:
There you have it! Now you see your private key for Bitcoin and you're ready to start trading! That's also how you can see your private key for other assets and currencies, too.
Some scammers will always attempt to steal information the old-fashioned way. If someone messages you asking for your passphrase or private key , don't fall for it! Never share your information with anyone, no matter who they claim to be! In the wrong person's hands, your Bitcoins are as good as gone.
Bitcoin's price is a popular topic. People watch with amazement as the price goes high and low. It sometimes feels chaotic, without any rhyme or reason. Still, we can discern a pattern in Bitcoin's price changes. In fact, Bitcoin's price is a reflection of each detail we discussed above.
The halving event probably has the most significant effect on Bitcoin's price. Each event seems to trigger another boom and bust cycle of Bitcoin's price. A few months after the latest halving event, Bitcoin reached a new all-time high of $68,793.63. Since then, its price has fluctuated in a range far higher than its price before the last halving event. The next halving event is likely to occur in 2024.
Bitcoin's fixed supply in the world is one of the fundamental reasons it's sought after. Like gold, Bitcoin has a limited number in circulation. Once we mine every Bitcoin, the asset will become rarer. We'll likely see that more clearly as each halving event occurs. Bitcoin's simplicity makes it such a valuable commodity. If you could choose between receiving Bitcoin or the same amount in gold, which would you choose? You"d probably choose Bitcoin. People have so much faith in Bitcoin's future, and that's bringing wealth to the token's holders.
Bitcoin currently has 18.9 million Bitcoins in circulation. That means we can only mine 1.1 million Bitcoins. Approximately every four years, the network halves the mining rewards. This slows down the process of Bitcoins becoming available. In the year 2140, all 21 million Bitcoins would be in circulation.
In the last five years, 20% of all Bitcoins haven't moved from their wallets. These could be from wallets that have lost passwords. Still, they might also belong to long term holders.
When we mine all 21 million Bitcoin, the miners will instead start receiving small transaction fees as rewards. The network will automatically deduct these from Bitcoin transactions. At that point, we won't have any more Bitcoins left to discover. One Bitcoin's price would increase dramatically.
Bitcoin's current price is around $38,000. In November, it achieved an all-time-high of $68,793.63. Since then, it dipped to its current price. The opinions regarding its direction over the coming months are very mixed.
Cryptocurrency is a digital currency secured by blockchain technology. On the blockchain, cryptography validates transactions. That means it's a decentralized system: it doesn't need a central authority. Bitcoin was the first cryptocurrency, pioneering the Proof-of-Work method of validating transactions. This technology has helped to pave the way for other projects in the crypto space.
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