The fixed supply of bitcoins is a fundamental aspect of its design, intended to mimic the scarcity and value preservation characteristics of precious metals like gold. Bitcoin's creator, Satoshi Nakamoto, designed the cryptocurrency with a cap of 21 million coins to prevent inflation and ensure that the digital currency remains scarce over time, thus potentially increasing its value as demand grows.
The concept of a fixed supply is embedded in Bitcoin's protocol through a process known as "halving." Approximately every four years, or after every 210,000 blocks are mined, the reward for mining new blocks is cut in half. This mechanism reduces the rate at which new bitcoins are created and introduced into the system, ensuring that the total supply will asymptotically approach the 21 million cap[2][3][6][19].
The decision to cap Bitcoin's supply at 21 million is arbitrary, but it serves several important functions:
Inflation Control: Traditional fiat currencies can be printed without limit, leading to inflation. Bitcoin's fixed supply counters this by ensuring that there will never be more than 21 million bitcoins in existence, making it a deflationary asset by nature[2][16].
Scarcity and Value Preservation: Just as the scarcity of gold contributes to its value, the limited supply of bitcoins is intended to preserve its value over time. As demand for Bitcoin increases, its fixed supply should, in theory, lead to an increase in its price, assuming demand remains constant or grows[2][3].
Predictability: The fixed supply and the predictable rate at which new bitcoins are created (due to halvings) provide a level of predictability that is absent in traditional monetary systems. This predictability is appealing to investors who are looking for assets that are not subject to arbitrary changes in supply[2][19].
Decentralization and Security: The halving events and the eventual fixed supply incentivize miners to continue securing the network. Even after the last bitcoin is mined, miners will still be rewarded through transaction fees, ensuring the network remai...
