Part of the crypto community believes that limited Bitcoin supply will inevitably lead to a decrease in the number of miners and, therefore, make the network less secure and operational. Those people are in favor of increasing the supply of the first cryptocurrency, which Satoshi set at 21 million coins. The majority is categorically against it and believes that this may dethrone Bitcoin. We reviewed the arguments of both sides, weighing the pros and cons.
Who Is Offering to Increase Bitcoin Supply?
The limited supply nature of Bitcoin is one of the cornerstones of the first cryptocurrency, as written by Satoshi Nakamoto in the white paper. At the time of publication of the article in February 2018, 17.552 million Bitcoins are in circulation or 83.6% of the maximum supply. According to calculations, the number of coins will be 19.68 million in 2024, 20.34 million in 2028, and 20.34 million in 2032. The remaining part will be delayed for about 100 years, and the last Bitcoin will be produced around 2140.
In early February, the Satoshi Roundtable event was held. One of its members, Matt Luongo, who is the founder of the Bitcoin payment application Fold, in response to a discussion about the alleged adoption of the Lightning Network, put forward the idea of raising the Bitcoin supply limit.
Luongo believes that if the Lightning Network is accepted, the volume of transactions will fall, and the miners will not be able to earn even on transaction fees, not to mention the reward for the mined block, which is already reduced every four years. As a result, they will lose the incentive to maintain network performance, and the number of miners will decrease, which can lead to a 51-percent attack, centralization of the network, and reduction of its security. Luongo believes that increasing the Bitcoin supply can motivate miners to stay online and ensure its safety.
Matt Luongo’s tweet with a proposal to increase Bitcoin supply, which served as the beginning of an extensive thread:
In response,@CobraBitcoin, the co-owner of Bitcoin.org and Bitcointalk.org, wrote that only 21 million Bitcoins would be released, and advised Luongo to get out of the crypto community if he does not like it, “because you aren’t welcome”:
Are such fears justified? Most experts think not, and here are their arguments.
Nobody Needs Another Fork of Bitcoin
An increase in Bitcoin supply would require the agreement of 80% of the crypto community and software updates while supporters of such an idea are in the minority. This means that an increase in supply might lead to another fork of the coin. Viktor Pershikov, a leading analyst at the Mine crypto corporation, believes that such a “fork from the original chain will have absolutely nothing to do with Bitcoin and will move away from the original idea much farther than Bitcoin ABC, Bitcoin SV, and dozens of other s**tcoins formed in the result of forks. It can be assumed that the idea of increasing supply was raised by the next ‘enterprising’ people who want to fork and make money on it through premining.”
A fork will not bring particular benefits to miners, either. Just another new coin will appear, the demand for which will be determined solely by speculative market needs. “Bitcoin with a modified ‘upper threshold’ is already an altcoin, to say the least,” says Alexander Kitchenko, a cryptocurrency investor, member of the Bitcoin Foundation. “The price of altcoins with unlimited supply or other tools that allow literally ‘reprinting funds’ is clearly not even close to Bitcoin and is unlikely to ever catch up with it.” Some, of course, will mine such a fork, but only to quickly convert it into fiat or another cryptocurrency. But soon the price of this fork will go down, and miners who were initially motivated will start to scatter much faster than in the version where there is a limit on the maximum number of coins.
Miners Will Be Able to Earn Commissions
Bitcoin is not just mining with a block reward. In the Bitcoin white paper, Satoshi writes that “once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees.” A reward for the block was needed only in the early stages of the project’s development to attract new users and gradually add coins to the system.
The more Bitcoins mined, the lower the reward for the found block, but the higher the transaction fee. When they get all the Bitcoins, the miners will no longer be able to get a reward for the added block. Their only income will be transaction fees, as miners will assume the role of payment systems or banks. Whether they will have enough income or not will be decided by the market. Wayne Vaughan, the founder of Tierion, proposes to start thinking about switching to such a model.
“Now the size of this commission is not very large, but the fewer Bitcoins remain, the higher their cost. Therefore, if Bitcoin exists for a long time, if it proves its solvency and is actually used in the economic turnover, then the price for it can reach several tens of thousands of dollars,” said Valery Petrov, vice president of RACIB.
Now the reward in Satoshi seems insignificant, but with a multiple increase in the rate or an increase in the volume of transactions, transaction fees may bring more profit than today’s mining. “Let me remind you that, comparatively recently, people bought pizza for thousands of Bitcoins. I’m sure that in time, it will be possible to buy more for a smaller amount of Bitcoins, and the questions that miners will be offended by new emerging realities will disappear in this case,” said crypto investor Alexander Kitchenko.
Finite Supply Keeps Bitcoin from Inflation
It is not known exactly why Nakamoto chose precisely 21 million as the limit on the number of Bitcoins. But the very limited supply itself, according to Satoshi, must fight inflation once the number of coins is limited, it means that their rate should increase in the future. If the increase in supply did take place, no one knows how the market would behave as it could also cause a significant drop in the value of the coin.
Network Security Is Not at Risk
It seems obvious that as the reward per block decreases, the miners’ motivation to mine the coin should also fall. In fact, it happens differently. When the miners are disconnected from the network, its complexity falls, which means that the remuneration grows and the miners reconnect to the network. It is possible to monitor the decrease in the hashrate and, if necessary, have time to take measures to prevent possible attacks. But still, resources required for a 51-percent attack will many times exceed the economic benefit from such an attack. Cryptographic scientist Nick Szabo believes that lowering the network’s hashrate will not have a significant impact on network security, but will significantly increase the waiting time for confirmation of large transactions:
Limited Bitcoin supply does not interfere with the network, although it deprives today’s miners of the incentive to mine new Bitcoins. “But it’s not completely clear why society should think about how to provide the miners with a comfortable continuation of their favorite activity, and why should not the miners think about what is useful for society,” says Leonid Delitsyn, an analyst at FINAM. “Limited supply is detrimental to a home miner but does not affect the mining industry as a whole: neither the price nor the position of Bitcoin,” added trader Grigory Polezhaev.
An Increase in Supply Would Undermine the Credibility of the Coin
Finite supply is the very essence of Bitcoin. Its increase would significantly undermine the credibility of the coin, deservedly considered the most reliable and stable among all cryptocurrencies. “The fears that Bitcoin at current prices will be mined and the remuneration for miners will decrease significantly seem reasonable. But this does not mean that you need to carry out a new issue. If this happens after all, then in fact all confidence in the system will be destroyed,” said Valery Petrov, vice president of the Russian Association of Cryptocurrencies and Blockchain.
So far, the proposal to increase Bitcoin supply looks like a speculative idea that is beneficial only for small miners or developers of the next fork. This would be necessary only under the condition of real, and not anticipated, future problems that could lead to the death of the network. So far, there is no reason for this, and the supporters of change themselves understand this.
Matt Luongo replied to his opponents that he had never made a concrete proposal, but only began a speculative discussion about the difficulties that might come in the future:
What do you think, is it necessary to increase Bitcoin supply? Write your ideas in the comments.