Cryptocurrencies are getting popular as a new digital payment system. As of 2021, there are more than four thousand cryptocurrencies. However, only a few are the best and gaining recognition and acceptance by investors. Among these, Bitcoin is performing incredibly well and is still considered the best cryptocurrency.
The main reason why these digital currencies grabbing attention is that they do not rely on banks to verify transactions. But what makes Bitcoin so special?
Why Bitcoin has a greater value?
The answer lies within the limited supply of this crypto currency. Bitcoin is enjoying a better value because of “bitcoin halving” which limits its supply to 21 million. Like other cryptocurrencies Bitcoins are generated through mining by solving complex mathematical equations. But the process of Bitcoin mining is a little different.
The BTC mining reward is reduced to half after every four years. If we look at another cryptocurrency Ethereum, it does not follow this pattern. Ethereum is right now the second most valuable crypto currency, but it offers a continuous flow of digital assets.
In simple words, the finite supply of Bitcoin preserves its value. Bitcoin mining is becoming less profitable which in turn is increasing the price value.
The Bitcoin Halving Process
The presumed father of bitcoin, Satoshi Nakamoto, created bitcoin as a response to the Great Financial Crisis of 2008. And the way Bitcoin works makes it more valuable and reliable. Bitcoins are generated through the mining process, but after every 210,000 blocks, the value is reduced. This is the milestone after which the Bitcoin halving occurs.
Bitcoin halving reduces the reward and thus increases the price of existing currency. For example, the 2020 halving process set the block reward to 6.25 BTC. And after the next 210,000 blocks, the BTC value will reduce to 3.125 in 2024.
The limited supply nature of Bitcoin is the reason why it is the number one cryptocurrency. The creator of Bitcoin has capped the BTC.
Will the Bitcoin Rules change?
Although Bitcoin is evolving over time, it is hard to see any changes in the supply of BTC. And changing the Bitcoin architecture to increase its limit is also very hard. The creator has designed it in such a way that the one who tries to change the supply will get nothing. In fact, the currency offers significant inducements to persons who oppose the change to its capped supply.
- Changing the Bitcoin Architecture
Writing or rewriting the code is a mammoth task. It will take several groups of developers to collaborate and work on changing the architecture.
- Agreement on Supply Change
Secondly, any increase in the Bitcoin supply means the value of existing coins will reduce. After all, it is all about the basic “Supply and Demand” principle. And not everyone will be interested in losing his investment, right?
The price will go down if the supply of Bitcoin is increased. So, unless all the network agrees on increasing the supply, an effort cannot be made.
We are not saying that a limited supply is the only reason why Bitcoin is so successful. Many other cryptocurrencies, like Chain-link (1 billion), Cardano (45 billion), and Litecoin (84 million) have a fixed supply limit. Neither we are saying that a cryptocurrency with unlimited supply cannot make it to the big league. But the hard-capped supply and halving process are two factors that have preserved Bitcoin value so far.