How Many Bitcoins Are There in the World?
Surprised to find out that there’s a fixed number of bitcoins that can be mined in the world?
Did you just take the plunge and made your first bitcoin investment ever and are now afraid it will turn out to be a fool’s errand?
Are you just a cryptocurrency buff that can’t get enough crypto facts to chew on?
We’ve got you covered!
In our guide today we’re going to address these concerns and explain to you in great detail why someone would decide to set a supply limit on the most sought-after digital coin in the past decade. We’ll look at some Bitcoin statistics showing the supply and demand relationship, and discuss whether it’s time to sound the alarm.
Bitcoin Limited Supply Explained
To get to the mechanism of Bitcoin and the number of coins that are left versus those that have already been mined, we need to know a little bit of the history behind Bitcoin. For that reason, we’ll travel back to 2009, the year when Bitcoin appeared, and even a few decades before, to understand what spurred the need for digital coins.
Financial Institutions and Mistrust
The first major revolution of the financial system was the introduction of credit cards in the 50s and debit cards in the 70s. The relatively cumbersome payment process was gradually being replaced by these portable yet secure plastic objects with no intrinsic value in themselves.
Their success was instantaneous, and they continue to dominate as a payment method today, as shown below:
Leading payment methods in the United States in 2018. Source: Statista
However, in the 80s and 90s, a lot of people started questioning the efficiency and transparency of the financial institutions of the day. It will sound unfair to say they haven’t made our lives easier, but it would be hypocritical to pretend they haven’t abused their power on many occasions.
Banks function as intermediaries who have the central authority in the transaction process of their customers. This means that transactions aren’t private at all since they carry the name and location of the sender and the receiver, the exact time it was sent, and the sum in question.
What’s more, banks use every opportunity to charge you an extra fee, and we’re not talking only about regular withdrawals or international transfers. And how secure are they really? Centralized systems safeguarding large sums of money and valuable data are vulnerable to hacker attacks.
For these reasons, at the end of the 20th century, a lot of computer scientists, software engineers, and technology buffs were already working on creating a decentralized and anonymous electronic payment system as an alternative.
The Famous White Paper
In the late 90s and early 2000s, there were a few startups who offered possible solutions, most notably David Chaum’s DigiCash and Wei Dai’s B-Money. These projects weren’t fully developed yet and failed to live up to the expectations and far-fetched promises.
However, the work of these computer scientists was a major influence on the blockchain as we know it today. Against the backdrop of financial turmoil and the aftermath of the stock market crash of 2008, an unidentified individual under the name of Satoshi Nakamoto published the Bitcoin White Paper on Halloween Night in 2008.
In the paper, Nakamoto introduced the first complete non-trust basedpayment system and explained the mechanism behind the blockchain technology used by the system.
The Bitcoin Blockchain
Blockchain is a digital ledger used to record and permanently store any type of data, or in the case of digital payments, it stores online transactions. The data is added into “blocks” that are hashed and “chained” to the ledger.
The ledger is part of a peer-to-peer network joined by users from around the world who voluntarily operate the network nodes. The job of the miners – as in mining digital coins – is to solve a complex algorithmic puzzle using a hash function to verify incoming transactions on the blockchain.
Their solution gets broadcasted to the rest of the nodes and as soon as the majority of them validate it, the transaction will be approved and recorded in the next block. This is the so-called proof of work (PoW) consensus method.
Source: Bitcoin White Paper
On the Bitcoin blockchain, a new block gets mined every ten minutes. Every transaction is timestamped and immediately recorded on each copy of the blockchain. It’s pseudonymous because it’s linked only to your electronic address, i.e. your digital pseudonym. Moreover, transactions can’t be changed or deleted.
If someone tries to tamper with the data, the system will reject him/her as the information won’t match with the logs of the nodes.
What Is the Miners’ Incentive?
How do we know how much processing power a miner needs to expend in order to solve the algorithmic puzzle for the next blockchain block? We measure how many times per second the miner attempted to perform a hash and find the solution. This is known as a hash rate.
The hash rate statistic above is from Blockchain, showing that Bitcoin’s hash rate began a sudden and rapid ascend in 2017 when the network experienced a huge wave of new users. With some ups and downs, the current Bitcoin hash rate is 80 EH/s (quintillion hashes!).
The question then is why would anyone volunteer to buy expensive mining hardware that will consume a lot of energy, and spend precious time solving complex mathematical problems? There must be a catch to it.
Nakamoto writes in the Bitcoin paper:
“By convention, the first transaction in a block is a special transaction that starts a new coin owned by the creator of the block. This adds an incentive for nodes to support the network, and provides a way to initially distribute coins into circulation, since there is no central authority to issue them. The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.”
A portion of bitcoins to reward the miners’ effort. Plus, a small transaction fee as well. Genius, right? He/She has thought of everything!
Distribution of Bitcoin nodes. Source: BitNodes
Why Did Nakamoto Set a Limit?
Nakamoto was optimistic that the Bitcoin Blockchain will continue to grow, and more and more nodes will join the network. The best way to prevent inflation and add a layer of scarcity to the coin, according to him, was to set an upper limit. The upper limit for Bitcoin is 21 million coins.
But why choose that particular number?
“My choice for the number of coins and distribution schedule was an educated guess. It was a difficult choice, because once the network is going it’s locked in and we’re stuck with it. I wanted to pick something that would make prices similar to existing currencies, but without knowing the future, that’s very hard. I ended up picking something in the middle.”
This is what Nakamoto says in his reply to an email sent to him by Mike Hearn, a software engineer. The idea was for bitcoin to reach a more stable value, or even align with accepted fiat currencies, as in 0.001 BTC being worth 1 EUR, for example.
He continues: “If Bitcoin remains a small niche, it’ll be worth less per unit than existing currencies. If you imagine it being used for some fraction of world commerce, then there’s only going to be 21 million coins for the whole world, so it would be worth much more per unit.”
However, imagine what would have happened if he had launched the network with all 21 million coins. It took a few years before the demand for bitcoins picked up. That would have led to excess supply and there would be little to no incentive for the value of bitcoin to rise.
Nakamoto was smarter than that. He elaborates his thought and ideas in an email sent to the Cryptography Mailing List in 2009:
“As computers get faster and the total computing power applied to creating bitcoins increases, the difficulty increases proportionally to keep the total new production constant. Thus, it is known in advance how many new bitcoins will be created every year in the future.
The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase.”
Coins have to get initially distributed somehow, and a constant rate seems like the best formula.
(Source: Satoshi Nakamoto Institute)
Every 210,000 blocks, the Bitcoin Blockchain is programmed to do a “halving” or “halvening” by cutting the mining reward in half. It takes four years on average to generate that many blocks.
In 2009, when Bitcoin was first launched, the miners received 50 BTC for each block they would mine. Before the first halving, in November 2012, the miners succeeded in generating a total of 10,500,000 BTC! After the halving, miners started receiving 25 BTC per block.
From today’s perspective, if we calculate the reward with the current Bitcoin value in mind (around $7,300!), it will seem like a whole lot of money – more than $365,000 for one single block! However, at that time Bitcoin was still in its infancy and few people took the risk to invest their time and money into mining the first digital currency and keeping the network running.
In reality, Bitcoin reached the highest market price for 2011 in June, when 1 BTC was worth $31! Crypto enthusiasts and miners didn’t have much time to congratulate each other as the price slopped back down to $2 in just a few months. However, those who were brave enough and who stuck up for Bitcoin even then made a great profit in the long run.
A historical chart of Bitcoin price from 2009 to 2019. Source: BitcoinWiki
The second halving took place four years later, in July 2016, and miners now began earning 12.5 BTC per block. This is their current rate, as the next halving is expected in May 2020. That’s in less than half a year! Here’s a live counter where you can check how many days are left before the third halving.
Next May, the mining reward will get down to 6.25 BTC or $45,000 per block if Bitcoin’s price stays more or less the same.
Why 21 Million Coins?
Even though there’s no official statement to confirm this, many crypto enthusiasts believe that to arrive at the number 21 million, Nakamoto took three additional things into consideration:
- Bitcoin adds a new block to the blockchain every ten minutes.
- The mining award started at 50 BTC.
- The mining award is halved every four years.
Now let’s turn to maths for some calculations, courtesy of Chris Moore who posted them in the Bitcoin section of the forum StackExchange.
Calculate the number of blocks per four-year cycle:
6 blocks per hour
* 24 hours per day
* 365 days per year
* 4 years per cycle
Sum all the block reward sizes:
50 + 25 + 12.5 + 6.25 + 3.125 + … = 100
Multiply the two:
210,000 * 100 = 21 million.
The maths lines up perfectly but it still doesn’t tell us anything about the economics behind it. We might never know why exactly 21 million coins but so far, this seems like the most convincing theory.
How Many Bitcoins Have Been Mined?
As of December 25th, 2019, 86.30% of the total bitcoin supply has been mined! That’s 18,122,838 BTC in circulation! You can always go to CoinMarketCap and check the circulating supply.
It took us around ten years to get to mine this many coins, so does that mean the rest of them will be mined in less than three years? Far be it! We already know that the maths behind Bitcoin is way more complex than that.
“Bitcoin deterministic supply.” Source: An Analysis of Bitcoin’s Price Dynamics, 2018, by a group of researchers from the NTNU Business School at the Norwegian University of Science and Technology in Trondheim and the Nord University Business School in Bodø, Norway
How Many Bitcoins Are Left?
From the hard-capped supply, there’re 2,877,162 BTC waiting to be mined, or less than 15% until we approach the legendary number. Once miners have generated 21 million coins, the world’s supply will be tapped out and no more coins will be created.
Unless a change in protocol occurs to allow a larger supply of bitcoins.
Anyway, should you be worried now? Not really.
Following the complex timeline and calculations that drive Bitcoin, experts predict that it is highly unlikely for the last bitcoin to be mined before the year 2140. That’s 120 years from now!
Wait, what? How is this possible?
By now we know that the mining reward halves every four years and miners are already getting ready for the third halving which is right around the corner. The reward will continue to halve every four years on average until the last bitcoin has been “dug up” on the blockchain. This means that as the miners’ reward decreases, the time it takes to reach the final coin increases proportionally.
Moreover, to justify the need for a fixed coin supply and to maintain the mining pace, the mining difficulty goes up as well. It’s time for some more challenging mathematical problems.
The mining difficulty is recalibrated every two weeks which is the average time miners need to generate 2,016 blocks, keeping in mind that a new block is added to the Bitcoin blockchain every 10 minutes. The network makes adjustments to the mining difficulty so that blocks won’t be mind faster than planned as the network becomes overflooded with new miners.
Before two weeks have passed since the last 2,016 blocks, each miner divides the predetermined time a miner needs for 2,016 blocks (2016 x 10 minutes) with the actual time he/she had spent mining them. If that number is lower than 10, e.g. 9 minutes per block, the way to calculate that is 20160 / 18144 = 1.11.
Next, each miner multiplies the current mining difficulty by 1.11. If he/she got a number higher than 1, the difficulty increases, and vice versa. For the next 2,016 blocks, the miners have to work with this new difficulty.
“Finding a block header hash value below the target threshold—the algorithm underlying Bitcoin’s blockchain—is 850 billion times more difficult than it was originally. The approximate introduction dates of new mining technologies are indicated: CPUs, GPUs, field-programmable gate arrays (FPGAs), and application-specific integrated circuits (ASICs) in different VLSI nodes.” Source: Michael B. Taylor. (2017). The Evolution of Bitcoin Hardware. University of Washington
Will Miners Still Be Interested?
From the looks of it, miners will be most affected once we reach the supply limit. When all bitcoins will have been mined, miners won’t receive any rewards for their effort. Stripped of their main incentive, will they still be willing to operate the blockchain network?
With no mining reward, immediately after a block has been mined, there is zero expected reward for mining but nonzero electricity cost, which in turn makes mining unprofitable. This is illustrated below:
“Illustration of Mining Gaps. Miners will only mine when the instantaneous expected reward exceeds the instantaneous cost.” Source: Carlsten, Miles & Kalodner, Harry & Weinberg, S. & Narayanan, Arvind. (2016). On the Instability of Bitcoin Without the Block Reward.
However, Nakamoto thought about this and wrote the following in the Bitcoin White Paper:
“The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”
As we can see, he thinks miners will continue doing their job and will be satisfied with earning only transaction fees as a reward. Right now, this doesn’t sound very credible to us, because these fees are very small, somewhere around a few hundred dollars per block. No one can say as of yet, but there’s a great potential for them to go higher up as the price of bitcoin increases.
On the other hand, that might lead to Bitcoin operating as a small closed economy where transaction fees will figure as regular taxes.
We can’t do any harm making these speculations but there’s still plenty of time ahead of us to come up with various possible solutions for the mining gaps and the fixed supply of bitcoins as well. In the world of cryptocurrencies, things are rarely certain, but that uncertainty and their volatility is what makes them attractive.
Disclaimer: Digital currencies and cryptocurrencies are volatile and can involve a lot of risk. Their prices and performance is very unpredictable and past performance is no guarantee of future performance. Consult a financial advisor or obtain your own advice independent of this site before relying and acting on the information provided.