We have discussed many times how Bitcoin is scarce. There are only 21 million Bitcoin and they are not all mined yet. The protocol rewards miners with a diminishing amount of Bitcoin on the way to the total supply aka diminishing inflation until zero inflation. When the protocol went live in 2009 it released ~7,200 Bitcoin every day. After 210,000 blocks which happened in 2013 the code cut that number in half (halving) and released about ~3,600 Bitcoin every day. Again in 2016 (another 210,000 blocks), the code cut the growing supply of Bitcoin in half and ~1,800 were released every day. Another 210,000 blocks go by and in 2020 the code cut the miner reward in half again, now there are only ~900 Bitcoin mined every day. In 2024 we will have another halving and ~450 Bitcoin will be mined everyday. The last Bitcoin is set to be mined in the year 2136.
210,000 blocks is designed to be 4 years, read below.
Difficulty Adjustment
Notice I say there are ~900 Bitcoin mined everyday rather than giving you an exact number. This is because miners solve blocks at varying time intervals. It is designed to be one block every 10 minutes. Solving a block is just a math problem, albeit a complex one, it makes a difference how many miners are competing to solve that problem. Here we introduce the difficulty adjustment. This is one of the key components of Bitcoin that make it so successful. Every 2016 blocks (which is two weeks if blocks come in every 10 minutes) the Bitcoin code adjusts the difficulty for miners. If blocks come in faster than 10 minutes on average it makes the math problem harder and vise versa. Blocks coming in faster would signify more computational power (hash) coming onboard the network. For this reason the Bitcoin supply growth stays constant at a predictable rate and can’t be cherry picked by a large actor coming onto the network. The difficulty adjustment is considered one of the most important features of the protocol.
Check out Clark Moody and the dashboard he created with a whole host of different Bitcoin blockchain statistics. I have a couple favorited and you can see the time since the last block, estimated difficulty adjustment, and blocks until the next adjustment. I love this dashboard and refer to it often. Notice the total mined Bitcoin supply and the height of the blockchain.
These charts below are provided by blockchain.com/charts.
This chart shows the amount of hash rate (computing power) on the Bitcoin network. In simple terms - total computing power put forth by the miners. The hash rate demonstrates a growing competition to mine Bitcoin which subsequently secures the network. A nefarious actor would need to have a majority of the networks hash rate to attempt to add successful fraudulent transactions. This is called a 51% attack and is all but impossible with how large the Bitcoin network has become. This is something that could have been possible in the early couple years. Smaller “alt coins” or cryptocurrencies have had this happen because their network is simply not very large.
The picture below attempts to demonstrate the security.
Notice in the first chart above the recent large drop-off in hash rate. If we now look at the networks difficulty it also had a large drop-off to compensate.
China “banned” Bitcoin for the umpteenth time and that could take a newsletter of its own but to keep it short - China had a lot of hash rate within its boarders, miners were hooked up on government coal plants for cheap electricity but China kicked them all out. All of that hash had to turn off and attempt to relocate. In the meantime the difficulty for miners dropped because there was less competition. As hash has come back online the difficulty has been adjusting back up. The Bitcoin network handled this nation state level attack beautifully, as designed, without batting an eye. That hash is now more geographically disbursed, making Bitcoin even more decentralized, and stronger in the long run.