Any asset when faced with less supply in a market gets its demand high and this makes it scarce. The feature of scarcity and limited supply of any asset makes it valuable so that it may get high value and high demand in the market.
The same is the case with the crypto market. Cryptocurrencies are also valued based on their scarcity and demand. Almost all cryptocurrencies follow the ‘supply and demand’ principles to impose a hard cap. First, let’s clear the concept of the hard cap.
A hard cap is actually the limit applied on the absolute maximum supply of any cryptocurrency which is set by the code of a blockchain. So, when there is no additional supply to meet the higher demand, it raises the value of a token or cryptocurrency.
The concept of scarcity makes a crypto rare and thus increases its worth. A hard cap prevents any further production and issuance of tokens or cryptocurrency. For example the hard cap of the world’s first cryptocurrency, Bitcoin is set to 21 million.
Bitcoin has the main feature of limited supply as its creator Satoshi Nakamoto, an anonymous name, set its hard cap of 21 million.
Thus, the maximum number of bitcoins that can be issued in total is 21 million which is not expected to be reached as Bitcoin network uses bit-shift operators, an arithmetic operator that rounds some decimal points to the smallest integer.
After every ten minutes, new bitcoins are added to the Bitcoin supply which is the average time taken to create a new block of Bitcoin. The number of bitcoins minted per block is reduced by 50% after every 210,000 blocks.
The total number of bitcoins issued may fall or may not increase above 21 million due to the rounding down of the decimal points when the block reward for producing a new bitcoin block is divided in half.
This reward is expressed in satoshis, where one satoshi, being the smallest unit in the Bitcoin network, is equals to 0.00000001 bitcoins. To calculate a new reward, bit-shift operators is used, rounding down to the nearest whole integer.
When there is the maximum number of bitcoins mined i.e. all 21 million or slightly less than that, no new bitcoins will be mined or issued.
The transactions of bitcoin will continue as it is and pooled into blocks and processed as same. The bitcoin miners will also be rewarded but only with the transaction’s processing fees.
18.9 million bitcoins have been issued till January 2022 and 2.1 million are still to be released.
New bitcoins issued per block decrease by half after every four years so it’s hoped that bitcoin is not going to exceed its hard cap limit in a long-long time. But we’re all aware of the unexpected and unpredictable nature of Bitcoin, so let’s see and hope for the best.