Understanding the 21 million limit of Bitcoin ๐Ÿงขโ›‘

Bowler Hat and Red Nose

Total supply of cryptos refers to the maximum amount of a given crypto encoded in the blockchain. It can be understood as a safety limit that prevents additional units from being produced or put into circulation. This leads to a shortage, which causes the value of some tokens to rise, event as deflation.

If there is an increase in demand for something, but a shortage of it, then the units will be worth more, because those who want to buy them will be willing to pay more for them.

The hard cap is also used in the valuation of the initial coin offering (ICO), so investors and backers take this into account before buying the coin.
The hard and soft cap are the best-known elements in the initial coin offering.
The soft cap is the minimum amount needed to start the project, and the hard cap is the total amount the team wants to raise in the initial coin offering.

The role of the hard cap is to indicate the scarcity of the project and, based on this, the project owners will determine exactly how and in what proportion the money raised will be used.

The Bitcoin hard cap.

21 million. This is the number that is written into the source code and enforced by the network nodes.

This cap is important to keep the value of it. Like real estate and gold, it is difficult to expand the amount. Bitcoin production is becoming increasingly difficult and eventually impossible due to the halving every four years.

What is halving?

For Bitcoin, for every 210,000 blocks mined, or every four years or so, the miners’ block reward for processing transactions is halved, halving the speed at which new Bitcoins can be put into circulation. Thus, synthetically forcing the price to increase until all are released.

In 2009, the reward for each block in the mined chain was 50 Bitcoin. After the first halving it was 25, then 12.5, and from 11 May 2020 it became 6.25 Bitcoin per block.

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