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The 17th Millionth Bitcoin is about to be extracted: what it means and why it is important

The limited supply of Bitcoin is going to become a little bit more limited.

Excluding an unpredictable event, the 17 millionth bitcoin will probably be extracted in the next day, the data of Blockchain.info shows, a development that will mark the umpteenth milestone for the first cryptocurrency in the world. This is because, according to the current bitcoin rules, only 21 million bitcoins can be created.

Taking a step backwards, the milestone, the first indicator of millions of bitcoins to cross from mid-2016, is perhaps noteworthy as yet another reminder of the success of central information technology science: the digital scarcity created and enabled by shared software.

In short, the bitcoin code, after being cloned and adapted by dozens of other cryptocurrencies upstart, ensures that only a set number of new bitcoins are introduced to its economy at intervals. Miners, or those who run the hardware necessary to track the bitcoin transaction set, are rewarded with these poor data each time they add new entries to the official record.

However, there is a lot of variability in the process.

It should be noted that it can not be predicted with precision when the 17 millionth bitcoin will be extracted or who will undermine it, due to the numerous minor variations that are created in keeping a common software synchronized. That said, there is a relative predictability. Each bitcoin block produces 12.5 new bitcoins, and because bitcoin blocks occur approximately every 10 minutes, about 1,800 new bitcoins are created each day.

Therefore, it is perhaps best to consider this event as a "psychological barrier," Tetras Capital's founding partner, Alex Sunnarborg, has told CoinDesk, interpreted differently by the different communities.

Sunnarborg, for example, tried to point out that another way of interpreting the result is that 80% of all the bitcoins that will ever be created have been extracted. In other words, only about a fifth of the final offer remains for miners and future buyers.

Others see the goal as one that is ripe for the appreciation of technology and its results.

"I think it's great," said Tim Draper, the venture capitalist who bought millions of dollars in bitcoins seized by the US government at the auction in 2014, said of the imminent milestone.

He told CoinDesk:

"I bet the founders would not have imagined how important it would be to become bitcoins in their wildest dreams."

Way with words

Others have tried to suggest that the milestone is one that should be considered an education opportunity for both the characteristics of bitcoin and those of cryptocurrencies in general.

For example, unless all the humans who run the computers that run the bitcoin software decide to make a change (an unlikely scenario today), there's no way to introduce more new bitcoins. This result, a technical reality, has played a key role in the association of bitcoins with money, economics and other scarcely natural assets.

In this way, gold prospectors and readers of the Austrian economy who piled up in bitcoins soon understood the value of the characteristic, perhaps giving rise to the term "cryptocurrency" itself.

Trace Mayer, one of the most vocal members of this group, summed up the philosophy in a recent one Tweet, in which he argued that governments could try to prevent users from holding bitcoins in the future.

"Increasing the money supply is a means of confiscating through inflation, which is a form of taxation without representation or legal process," he wrote.

Also the new way in which the new bitcoins are born, called "mining", is a nod to the analogy with gold.

Rather than being issued by a central bank, bitcoin is created by a network through blockchain maintenance work. When a miner finds a hash valid for recent transactions, resolving the bitcoin protocol puzzle, he is rewarded with a "coinbase transaction", bitcoin credited to his account.

A bit of cryptocurrency is created and subtracted from the final supply.

The bitcoin offer curve

The way in which the participants were awarded has, of course, changed over time.

When bitcoin founder Satoshi Nakamoto extracted the first bitcoin block on January 3, 2009, he created the first 50 bitcoins. This reward remained the same for another 209,999 blocks, when the first "halvening" or reduction of premiums took place.

It was not a surprise. Every 210,000 blocks, based on a scheduled program, the network reduces the block premium by 50%. After the recent suspension, in July 2016, the reward is 12.5 bitcoins.

This means that while there are only 4 million bitcoins left for mine, the network will not reach the final supply in anything like the nine years needed to get that far. With the slowing down of waiting times, the rate of monetary inflation – growth of supply – slows down.

BashCo, a pseudonym moderator on r / bitcoin subreddit, traced the trajectory of the total supply of bitcoins (blue curve) relative to its rate of monetary inflation (orange line).

Source: BashCo.

Assuming that the bitcoin protocol remains the same (a new block is extracted every 10 minutes on average and the half-life and supply limit are unchanged), the last new bitcoin will not be extracted until May 2140.

The next 120 years

With this in mind, the chart suggests another common point of discussion when the milestone is recognized: that bitcoin is programmed to work for a very long time.

Jameson Lopp, chief engineer of the infrastructure at the Wallet House supplier, quickly reminded CoinDesk that bitcoins are divisible and that, as such, the smallest parts of each bitcoin can contain a seemingly infinite value.

He said:

"While 17 million BTCs may sound like a lot, it's incredibly scarce – there will not be enough for every current millionaire to own a whole bitcoin." Fortunately, every bitcoin is divisible into 100 million satoshi, so there will always be plenty to do ! "

But there are also other oddities in the software.

For one, bitcoin will never actually reach 21 million units, partly for mathematical reasons, partly because miners have not always claimed the entire reward. On May 17, 2011, for example, "midnightmagic" requested a block award of 49.99999999, instead of a 50.

Furthermore, to be clear, bitcoin does not stop working when 21 million bitcoins are produced. At that point, the idea is that the miners would be compensated only through the taxes they already collect. (Although some scientists have tried to understand if such a market would work in practice).

With so many questions left unanswered, if anything, the event still serves as another reminder of how far the bitcoin has come and how far it must go.

In the words of the longtime developer Adam Back:

"Another million down four more to do."

A more detailed explanation of the offer of bitcoins and digital scarcity can be found here.

Bitcoin image through Shutterstock.

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