How the 21 Million Bitcoin Supply Limit is Enforced
There will only be 21 million Bitcoins ever, but who controls it and how is it enforced?
Any form of money needs to be limited in supply to encourage and reward savers. And we are pretty convinced that gold cannot be a form of money, not anymore. A digitally connected global world needs a digital form of money. Now the next big question that most people have is whether is there a way to tamper with the 21 million Bitcoin supply limit.
If someone can change the limit, then our whole thesis of Bitcoin becoming money will break down. Then it doesn't make any sense to adopt Bitcoin as money.
One of the reasons why Bitcoin's 21 million supply limit can never be changed is because there is no single person who is capable of changing it.
To understand this, we need to understand the blockchain first. Specifically, the Bitcoin blockchain.
If I transfer some money from my bank account to your bank account, the bank keeps a record of it. A ledger that records all the debits and credits of money from different accounts. Your bank might have multiple copies of this ledger stored in multiple servers, but the ledger data is stored with one party.
Though it is unlikely, your bank has the power to change your account balance if they want to by changing the numbers on the ledger. They can't do it because they are regulated and monitored by the central bank. The central bank is under the control of the government (hopefully). This also means that you need to put your trust in the government and a central authority.
Now this doesn't mean that you shouldn't trust your government. You should put your trust in them and hope that they will not screw up, pay your taxes and stay legal in every possible way. But the ethos of Bitcoin is that there is no single authority controlling any aspect of Bitcoin. Not even the government. So how does it work?
If I send some Bitcoin (or Satoshis) from my Bitcoin wallet to your Bitcoin wallet, the transaction needs to be stored on a ledger. That ledger is the blockchain. Around 3000-5000, transactions are wrapped into a block and added to the blockchain. This work is done by the miners and we will learn more about mining in future lessons.
All the transactions that have happened on the Bitcoin network from the very first transaction to the most recent transaction are stored in the blockchain.
The size of the Bitcoin blockchain right now is a little less than 700 GB. That's not very big. Anyone like you or me can download the entire transaction record of Bitcoin from its inception to now, and keep it in a 1 terabyte hard disk.
Because the size of the blockchain is light, there are many copies of it across the world. Each copy is called a node. Instead of checking your wallet balance against a public node, you can check your wallet balance against your node.
In future lessons, I will teach you how to set up these nodes and experiment for yourself. That's when you will have some solid confidence kick in.
Nodes can be public or private. Public nodes broadcast the data out into the internet and anyone can check transactions on it. As of now, there are around 15,000 reachable Bitcoin nodes on the internet as of writing this article and the number is going up.
A copy of the blockchain with all the transaction history is stored on all these nodes. If any new transaction happens, the transactions are updated in real-time across all these nodes.
Including private nodes, it is estimated that there are more than 100,000 nodes across the world. If anyone wants to manipulate the Bitcoin supply limit, they have to simultaneously attack all the nodes, which is impossible.
Bitcoin is a roof supported by 1000s of pillars. If a few pillars are destroyed, more pillars will come up to support the roof. That's how the roof becomes indestructible, immutable, untouchable, and unchangeable.
The actual implementation of the nodes is more technical than I've described here, but you get the overall idea. We will dive deeper into this in the later chapters.
Only serious Bitcoiners run their nodes and anyone who owns Bitcoin will be interested in keeping the supply limit fixed at 21 million to preserve the value of their own Bitcoin.
There is no way you can convince all the nodes to agree to a change in the consensus.
The English language is a consensus. Even if a better language than English is invented, no one will speak that language and it will die.
The rules of the chess game are a consensus. If one person tries to change the rules of chess, say, the king can move in all directions like the queen, then no one will play chess with them.
The keyboard layout, Wifi protocols, and TCP/IP protocol are all consensus. These are rules that we agree upon for the benefit of all the people in the network.
Bitcoin's supply limit is a consensus. The inventor of Bitcoin might have come up with the 21 million limit, but we all agree and decide to continue to agree in the future that there will only ever be 21 million Bitcoins.
No one owns Bitcoin. The network owns it. Just like the English language. Just like gold. It's a public infrastructure with no central authority. Because the nodes are decentralized and spread across the world, there is no single point of failure.
This digital infrastructure is an asset to humanity. Now the world is coming to understand Bitcoin, and why it's digital but the supply is harder to increase than a physical commodity.
We are the early people studying it and embracing it. Seeing it beyond the criticisms that Bitcoin is bad and only used by criminals.
Bitcoin is a payment system + an asset. In a world where currencies are deflationary, there is no need to own assets.
Many people still think (or wish) for Bitcoin to die because they didn't get into it early. But most people don't understand that Bitcoin can never die beyond this point, and at some point, they will be forced to take part in the network, but it might be too late to enjoy its price appreciation.