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21 Million Supply: A Perspective of Incentives

21 Million Supply: A Perspective of Incentives

There will never be more than 21 million bitcoins.

Governments officials can print more money, oil and gold executives can invest in more resource extraction. Corporate boardrooms can issue more stock. Comparatively, Bitcoin has the strongest supply cap than any other global monetary asset. BTC has a hard cap of 21 million bitcoins in its source code. The network is programmed to mine the final bitcoin around the year 2148.

If Bitcoin is just software, then why can't the miners and nodes go and easily change the rules to add more bitcoin beyond the supply cap? Miners would want to keep mining bitcoin for financial gain, right? However, it's all about the broader incentive structure.

One of the key value propositions of Bitcoin is its scarcity. If the rules were changed to increase the supply cap of Bitcoin, the asset's price would permanently collapse, as the market would lose faith in Bitcoin's use case as a long-term store of value. This deviation would cause immense financial pain to all parties involved within the network. We're not talking about your typical short-term volatility. Think total system collapse.

While the technical process of this rule rejection is beyond the scope of this article, Bitcoin Magazine gives an in-depth explanation of how consensus works within the Bitcoin network.

This guaranteed negative market effect incentivizes miners and nodes to continue playing by the rules of a 21 million bitcoin supply cap. No centralized authority within the network can cause severe harm to the users based on their decisions alone. Changes to bitcoin's code must be opted into by over 51% of the network, making up thousands of nodes across the planet, not just the miners. Bitcoin's form of consensus and incentive structure is just one of many reasons why this technology is groundbreaking.

This article, along with all content and opinions from BTC Examiner, is for educational purposes only and is not financial advice. Please reach out to your financial advisor before making any investment.

This content is for information purposes only. It is not intended to be investment advice. Please seek a duly licensed professional for investment advice.