BTC crosses the hallmark of 19.8 mined units on Xmas eve. It’s time to talk about Bitcoin’s supply cap

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As someone who has been closely following the cryptocurrency landscape for over a decade now, I must say that the recent developments regarding Bitcoin‘s fixed supply and the concept of “virgin bitcoins” have caught my attention.

By December 24, 2024, the quantity of mined Bitcoins surpassed 19,800,000, implying that only about 1.2 million Bitcoins remain to be mined before the maximum limit is reached.

Following the 2024 halving event, approximately 450 new Bitcoins are generated daily, as reported by one of the earliest websites gathering Bitcoin data. On December 24th, according to this source, a significant milestone was reached when the total number of mined Bitcoins surpassed 19.8 million.

It’s likely you’re aware that Bitcoin has a maximum limit of 21 million units. This raises questions such as: Will all Bitcoins be mined soon? What transpires when the remaining supply is depleted? Why is Bitcoin scarcity significant, and can this cap be eliminated? To clarify these points, read on.

Table of Contents

When will all 21 million bitcoins be mined, and what will happen next?

Approximately 95% of all existing bitcoins were mined within the first 14 years since Bitcoin was created. These remaining fractions won’t be fully mined until the year 2140. This is because the rate at which new Bitcoins are produced decreases by half approximately every four years, once 210,000 more blocks have been mined – a process known as “halving.

Starting from December 2024, each newly mined block provides 3.25 Bitcoins as a mining reward. However, by the year 2140, this reward amount will be smaller than the smallest unit of Bitcoin, called Satoshi, which is equivalent to one-millionth part of a single Bitcoin. Since Satoshi represents the smallest possible fraction of Bitcoin, the halving event in 2140 will essentially bring an end to the creation or “mining” of new Bitcoins.

At the core, Bitcoin’s network reliability and security lies in mining, and miners are driven to carry on with their demanding tasks by the mining rewards. Fortunately, even when new Bitcoins are no longer produced, miners will continue to receive compensation. Instead of receiving newly created coins, they will be given a share of the transaction fees paid by senders. It’s important to note that already, these transaction fees for prioritization account for a significant part of miner rewards.

Why does the Bitcoin scarcity matter?

While inflation is not inherently bad, as it drives the economy when healthy, Bitcoin is usually celebrated as a deflationary asset. While the government can print more dollars, thus decreasing the value of dollars you already hold, Bitcoin is coded in a way that its supply is immutable and limited to 21 million units. 

Over time, since a fixed number of Bitcoins can never be created beyond the total supply, and some Bitcoins may remain in permanently closed digital wallets, there’s a widespread belief that the value of each individual Bitcoin will continue to increase.

The people who believe in the stock-to-flow model argue that rarity determines value. But it’s important to note that rarity isn’t always the only factor influencing value. For instance, imagine if you drew a unique currency unit; just because it’s rare doesn’t mean it would be highly valued. Similarly, Bitcoin already has a high value, so its scarcity makes people compete for each unit, which in turn increases the price due to the halvings in supply.

Is it possible to remove the supply cap?

A video lasting three minutes about Bitcoin, published by BlackRock in December 2024, ignited a lively debate online about the potential consequences if the limit on its supply were to be lifted.

Changes to Bitcoin can be made, given that its structure has been altered before via hard forks at the community’s discretion. If the team working on Bitcoin enhancements decides to make Bitcoin an inflationary currency and implements the necessary adjustments to the Bitcoin framework, then it’s possible we could witness an inflationary form of Bitcoin in the future.

Critics argue that these modifications would transform Bitcoin into an entirely new entity. Moreover, they emphasize that individuals desiring Bitcoin without a capped supply have the option to stick with the original design conceptualized by Satoshi Nakamoto.

Is there really any doubt that the current fixed supply can’t be altered? Quite to the contrary, if changes are made, Bitcoin undergoes a hard fork, resulting in two different Bitcoins. The original fixed supply one will persist, and it is this version that people will continue to hold value in.

— Bludex (@0xBludex) December 18, 2024

Why will the actual number of bitcoins in circulation never be close to 21 million?

It is widely speculated that Satoshi Nakamoto possesses a significant amount of Bitcoin mined during the early stages, some estimating this figure to be around one million Bitcoins. However, the Bitcoins linked to Nakamoto’s known wallet have not been active since 2009, leading many to suggest that these “frozen” Bitcoins number in the millions across the blockchain ledger.

As per the same Clark Moody site we discussed earlier, approximately 220.31 Bitcoin (BTC) are considered ‘irrefutably’ inaccessible. This is because these Bitcoins cannot be spent due to their isolation as unrewarded rewards, null transaction outputs, or other reasons.

It seems that the term “provably” suggests there could be more bitcoins that have gone missing permanently. Numerous sources estimate this number to range from approximately 3 to as many as 8 million bitcoins which are believed to be irretrievable. In line with a CryptoSlate article dated June 2024, about 7.7 million coins either vanished or remain in the possession of long-term investors, often referred to as “hodlers.

Bitcoins frequently become inaccessible due to several causes: users may misplace their private keys, digital wallets or physical copies might get damaged, transactions might be sent to incorrect addresses, and so forth. It’s important to note that as a result of this, the quantity of lost bitcoins is expected to continue increasing, which in turn reduces the total number of bitcoins circulating within the system.

What are virgin bitcoins, and why would someone want to pay extra for them?

2140 marks the conclusion of the period known as “unused Bitcoins.” These are coins that haven’t been utilized before, thus possessing an unblemished record of transactions.

Freshly minted Bitcoins are incredibly scarce. The only method to acquire such Bitcoin is by purchasing it directly from the miner through a peer-to-peer service (since exchanging a fresh Bitcoin would tarnish its transaction record). Moreover, if you obtained a portion of BTC from mining as part of a pool, that BTC can’t be considered “virgin” because mining pools distribute rewards among all miners, meaning miners aren’t getting these Bitcoins directly.

After Bitcoin is incorporated into an unspent transaction output (UTXO), it can no longer be considered untouched or unused. This occurs whenever the previously unspent bitcoin is divided and sent elsewhere.

Since scarce, newly minted Bitcoins are more valuable due to their clean transaction history, it’s understandable why some investors would be willing to pay a premium for them. The reason lies in the fact that institutional investors aim to minimize risk by avoiding Bitcoins linked to illegal activities. These ‘tainted’ Bitcoins could potentially negatively impact their wealth if they end up in an investor’s portfolio. To eliminate this risk, the best course of action is to acquire freshly minted Bitcoins.

A notable crypto writer, Nic Carter, questions the very existence of virgin bitcoins, noting that it’s nearly impossible to produce them. In his article, he dismisses the importance of clean transaction history, citing the purchase of bitcoins seized by the U.S. government from the Silk Road market by venture capitalist Tim Draper.

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2024-12-25 00:28