Bitcoin's 21 Million Supply Cap Is a Boomer Myth

In the world of Bitcoin, some things are meant to be immutable. Yet a seemingly innocuous disclaimer in BlackRock's recent three-minute Bitcoin explainer video has sparked an existential debate about one of crypto's most sacred tenets: the 21 million supply cap.

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Happy Sunday explorers 🍻 In today’s Rabbit hole we scratch our heads as to how BlackRock's footnote sparked a fundamental debate about Bitcoin's future.

It’s a question that cuts to the heart of the debate: What happens when traditional finance's immense resources meet crypto's decentralised governance?

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In the world of Bitcoin, some things are meant to be immutable.

Yet a seemingly innocuous disclaimer in BlackRock's recent three-minute Bitcoin explainer video has sparked an existential debate about one of crypto's most sacred tenets: the 21 million supply cap.

"There is no guarantee that Bitcoin's 21 million supply cap will not be changed," read the footnote, causing a swift backlash from the crypto community.

For traditionalists, it was like suggesting the rules of chess might suddenly allow pawns to move backwards.

Technically possible, but fundamentally against the game's nature.

Wall Street's New Power Play

The timing couldn't be more pointed.

BlackRock with over 550,000 Bitcoin (worth approximately $53 billion) through its ETF, has an powerful influence over the asset.

Its disclaimer — in line with the similar language from its June 2023 ETF filing — has led to questions about the potential for institutional pressure on Bitcoin's fundamental properties.

Steve Patterson, the author of book Hijacking Bitcoin.

Technical Possibility vs Social Reality

The technical reality is both simple and complex.

Whether Bitcoin’s supply cap can be changed or not depends on how one defines “Bitcoin,” Super Testnet, pseudonymous Bitcoin developer behind BitVM, told Cointelegraph.

Yes, Bitcoin's supply cap could theoretically be changed through a hard fork.

Citing Satoshi Nakamoto’s Bitcoin whitepaper, Super Testnet reckons that the resulting network would be "Bitcoin" in name only.

"The inflation cap is definitional to Bitcoin … eliminate that, and whatever you have isn't Bitcoin anymore. You might as well ask what it would take to turn Bitcoin into PayPal."

An uncapped supply version of “Bitcoin” wouldn’t be Satoshi Nakamoto’s Bitcoin.

This perspective highlights a crucial distinction: while code can be changed, consensus is another matter entirely.

This difference has played out before — during the 2015-2017 Blocksize War.

The Blocksize War was the battle between Big and Small Blockers centred around the debate over increasing the blocksize limit, which determines how many transactions can be processed in each block of the blockchain.

Approximately 95% of Bitcoin miners supported increasing the block size limit. The proposal failed because node operators and investors refused to adopt the change.

The Security Budget Conundrum

The most pressing concern isn't the supply cap itself, but what happens as block rewards diminish.

Bitcoin's security model relies on miners being economically incentivised to maintain the network.

As rewards halve every 210,000 blocks, the system faces a crucial question: Will transaction fees alone be sufficient to maintain network security?

Some, like Bitcoin developer Nikita Zhavoronkov, argue that "large sustainable fees aren't happening, the 1 MB limit has to go."

Others, like Casa's CTO Jameson Lopp, view the future security budget as "Schrödinger's cat" — operating under philosophical, not provable, assumptions.

Are we going to see another Blocksize war in the future?

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The Shrinking Supply Reality

While we debate the sanctity of the 21 million cap, research suggests the effective supply might be significantly lower.

Analysts David Puell and James Check in their research report Cointime Economics estimate between 3.89 and 4.87 million coins could be considered permanently lost, including Satoshi's untouched Bitcoin stash and the zombie coins.

Quantifying the number of lost coins can be ambiguous, but if we take the lower base of the estimate it is still 3.89 million Bitcoin lost