BlackRock Opens Debate on Bitcoin’s Fixed Supply: Could It Change?

• A recent video by BlackRock, the world’s largest asset management firm, has sparked renewed discussions about Bitcoin’s fixed supply and its implications for the market.
• Traditionally, Bitcoin’s fixed supply has been heralded by investors as a crucial feature that distinguishes it from fiat currencies, which can be printed at will by central banks.

The discourse surrounding Bitcoin’s fixed supply has gained fresh momentum following the release of a video by BlackRock, the world’s largest asset management firm. In the 3-minute video, BlackRock’s representatives dive into the complexities of Bitcoin’s economics, specifically scrutinizing the asset’s capped supply. A noteworthy disclaimer stated, “There is no guarantee that Bitcoin’s 21 million supply cap will not be changed,” prompting essential questions: Who would benefit from altering Bitcoin’s supply cap, and what would be at stake?

Michael Saylor, Executive Chairman of MicroStrategy, shared the video, fueling the ongoing discussion. Detractors, like Joel Valenzuela from Dashpay, cautioned that any efforts to change the cap could jeopardize Bitcoin’s credibility, while Ethereum developer Antiprosynthesis suggested that “BlackRock understands Bitcoin better than Bitcoiners,” highlighting differing views on the topic.

BlackRock explains #Bitcoinpic.twitter.com/X2fPl8tL2s

— Michael Saylor (@saylor) December 17, 2024

Supporters of the cap argue that it is integral to Bitcoin’s legitimacy and overall value. Changing the cap could create a volatile environment that undermines investor confidence, risking the very foundation of trust upon which Bitcoin is built. Additionally, it could only benefit those looking to increase liquidity or market availability, but at the cost of jeopardizing the fixed-supply principle that attracts many investors. 

So, Can Bitcoin’s Hard Cap Be Changed?

Achieving a change to Bitcoin’s hard cap would require a hard fork, necessitating collaboration among developers, miners, and nodes within the decentralized network. If a significant majority supported a system with an uncapped supply and it gained traction in market share and hash rate, it could potentially evolve into a separate entity. However, cryptocurrency developer Super Testnet cautioned that such a change would diverge from Satoshi Nakamoto’s original vision, fundamentally altering Bitcoin’s identity.

This discussion around altering Bitcoin’s hard cap often stems from two misunderstandings regarding its decentralized, consensus-driven structure. Firstly, the diversity of Bitcoin code implementations complicates matters. While many nodes operate on the latest version of Bitcoin Core, a substantial number continue to run older or alternative versions. Consequently, even if changes to Bitcoin Core are made, persuading the extensive network of nodes to adopt these modifications poses a significant challenge.

Secondly, it’s crucial to recognize that miners do not control the Bitcoin network; they merely follow the regulations set by full nodes to earn their rewards. When miners propose new blocks, these are independently verified by thousands of nodes, which ensure that the blocks satisfy criteria such as valid Proof-of-Work. Historical events, like the Blocksize War from 2016 to 2017, underscore the community’s resistance to altering Bitcoin’s core principles, particularly its hard cap. Proposals to modify Bitcoin’s structure, such as increasing the block size limit, faced considerable opposition, illustrating a strong reluctance to deviate from established norms.

As miners face increasing economic pressure from the ongoing halving of block rewards, initially 50 BTC per block, now reduced to 6.25 BTC and expected to drop to about 3.125 BTC in the near future and ultimately to just 1.625 BTC by 2028, the need for innovation becomes pronounced. To offset these diminishing rewards, it is essential for the surrounding application layer, particularly decentralized finance (DeFi) and non-fungible tokens (NFTs), to evolve. If the Bitcoin supply structure does change, miners may struggle to maintain their financial viability, highlighting the intricacies and challenges at play within the Bitcoin ecosystem.

Bitcoin’s price fell over 5% on Wednesday after Federal Reserve Chairman Jerome Powell stated that the central bank is not looking to hold digital currencies. Despite this, Bitcoin is currently trading at $102,258, with a 1.70% increase over the past week, outperforming the overall cryptocurrency market, which is down 1.70%.