When Satoshi Nakamoto created Bitcoin, he set a strict limit on the amount of BTC that can exist for this cryptocurrency. According to the data Coinmarketrate.com, no more than 21 million Bitcoins will be available for its maximum offer.
This restriction, known as the hard limit, is written in the code itself, which is executed by the nodes of the network. This limit is an essential part of the value proposition that Bitcoin makes, both as money and as an investment.
Like gold or real estate, Bitcoin succeeds as a store of value because it is difficult to increase the volume of supply of this commodity.
This is further compounded by the “halving” event, which occurs every 4 years, as a result of which the reward for creating BTC is halved. After a certain date, new BTC will never be created.
Unless, of course, we can change this limit.
Changing the limit
Some critics of Bitcoin focus on this issue, saying that cryptocurrency is nothing more than software, and therefore the rules governing the system can be easily changed.
These critics believe that the block reward, which subsidizes miners when creating a new block using resources to confirm transactions in exchange for Bitcoins, will seek to protect its revenue stream by increasing the limit above 21 million in the future.
Thus, miners will have an incentive to change the maximum BTC supply, and give themselves the opportunity to “print” new Bitcoins. However, there are several reasons why this is unlikely to happen.
The limitation of the maximum amount of BTC that can exist is protected by an inventive system, as well as a management model.
Thanks to the Bitcoin architecture, the organization controlling the Bitcoin rules has strong incentives to resist changing this limit, while those who have the desire to do so have no control over the network.
Let’s take a closer look at these two problems that prevent us from seeing more Bitcoin than installed.
Miners have perhaps the strongest motivation to change the Bitcoin limit, at least directly. Perhaps there are other people interested in such an event, but because they believe that maintaining the happiness of miners can be beneficial to the ecosystem.
In any case, changing the maximum supply will only temporarily increase the income of miners. However, this will destroy the main investment thesis of Bitcoin – the deficit.
For many investors, the attractiveness of the BTC lies in its predictability due to fixed capital.
Money managers such as Paul Tudor Jones and institutions such as Fidelity Investments and BlackRock cite the shortage of Bitcoin as the most important reason for the growth of its value.
Eliminating this cornerstone that determines its price is not part of the miners’ plans.
Although they will get more BTC for their work, losing faith in the Bitcoin network will make their value even less. Worse, it can lead to a catastrophic and irreversible outcome – a collapse in prices, as a result of which they will lose all their profits in fiat terms.
Since all miners pay their expenses (equipment, salaries, electricity) in fiat money, they are concerned about the price of Bitcoin in one currency or another, be it rubles, euros or dollars. Therefore, if the price of Bitcoin collapses, miners lose.
Assumptions that the Bitcoin limit can be changed are rooted in two misconceptions about the crypto asset related to the fact that it is a distributed network based on consensus.
Firstly, there is not one, but several versions, on the order of tens or hundreds, of the Bitcoin source code. Every node of the Bitcoin network has a software version installed that rejects any invalid block.
Although many nodes work with the latest version of Bitcoin Core, a large number of nodes continue to work with older versions or other implementations.
While changing the Bitcoin Core source code is quite simple, it is much more difficult to convince all nodes to accept these changes. After all, each node may have its own version, but they all agree on what matters.
Secondly, miners do not control the rules of the network.
Miners produce new blocks and confirm transactions. When a miner sends a new block to the network, thousands of independent nodes check the block, making sure that it produces the right amount of new BTC. Also, that it includes the correct proof of work (PoW), and that the transactions included in it are valid.
Nodes will reject any block that does not comply with these rules, so miners have no control over them.
The theory was confirmed in reality when in 2017 95% of miners agreed to increase the size of the block limit in an attempt to make Bitcoin more scalable.
However, nodes and users opposed this change, and successfully managed to force miners to adopt another scalability alternative.
How can I change the Bitcoin limit
Despite the contradictions described above, changing the limit is theoretically possible. But this requires that several groups agree to cooperate for this purpose.
First, developers must propose a change, and then write code to implement it. Probably, a discussion will begin in the community, which can also be very controversial.
If the developers come to an agreement, it will eventually be integrated into Bitcoin Core.
The next step should be for the community to agree on a path to activation. This is important to ensure the collective transition of the network to changing the rules. Changing the limit will require a hard fork, which means that all nodes in the network will have to accept the changes or be excluded from the network.
In addition, activation paths, both miners and nodes must signal their support for the change, and as soon as the majority gives approval signals, it will be activated.
Nodes and miners who are now opposed will continue to work, but within the framework of a minority fork, preserving the original core of Bitcoin, and both networks will compete for hashrate and market capitalization.
Bitcoin critics believe that the limit rule can be easily changed by modifying its code, although the crypto asset is controlled by the software of its nodes, not the source code.
Removing the strict limit on the number of BTC that can exist will destroy the value of the king of cryptocurrencies as a system, and will alienate long-term investors and supporters.