The ∞/21,000,000 Fallacy

Why Bitcoin is not as infallible as many think

Here I aim to present a total rebuttal of a common Bitcoin talking point that has permeated many aspects of the discourse. People like Michael Saylor call Bitcoin “the hardest money in the history of the world,” but this sentiment extends far beyond him. In fact this concept is foundational to the value thesis of bitcoin itself. But it is a fallacy, and I will explain why.

Where does the value of Bitcoin come from?

The price of Bitcoin is created from the instantaneous supply demand balance on crypto exchanges. It’s not interesting to talk about unless your goal is speculation for profit. But what about the underlying value? In short, scarcity: Bitcoin is a scarce asset. Embedded in the code of Bitcoin, which is operated by thousands of independent nodes, is an intrinsic limit on the quantity of bitcoin that can be created. That limit is 21,000,000.

However, I would like to show just how fallible this limit truly is. There are two or three key ways in which this limit can be broken, or otherwise shown to be meaningless.

Forks

Bitcoin is fundamentally decentralized, there is no true canonical chain. Every block added represents a new branch in a possible tree. Any miner could create a new valid chain at some distant epoch in the past, rewriting history. However the incentive structure of Bitcoin is such that there is no reason to do this, no profit to be had. As long as everyone agrees that the longest chain is the de-facto canonical chain, miners point their hashers at that chain and ignore everything else. It is ultimately up to the miners to reach consensus as to which chain is canonical.

With that in mind, if it were ever to become the case that a majority of miners desired new code, for example code that lifted the 21,000,000 limit, there is nothing preventing that. Acolytes would denounce such a fork as not “true” bitcoin but there is nothing they could do about it. The longest chain wins in the end. All it takes is 51%.

And there are many reasons that miners would be incentivized to do such a thing; if they believed such a fork would not reduce the perceived public future value of bitcoin, in fact, they would immediately take such action as they would believe the new fork would increase their profit. Or if Bitcoin ever truly did pervade the global monetary system in the way maxis do, then the incentive to make such a currency inflationary would be immense. The central banks, governments, and private institutions that would now have a stake in bitcoin’s role as the center of gravity in a new global monetary system, are all well studied enough (unlike the maxis) to know the destruction wrought by a deflationary currency.

Even if you believe this will never happen, you must acknowledge its possibility. And once the possibility is acknowledged, then the fallibility of the statement “there will only ever be 21,000,000 bitcoins” becomes clear. There are an infinite number of possible ways the 21,000,000 limit could be exceeded. And furthermore, look to every point in history where currencies have been devalued and fundamentally altered. It is not the exception, but the rule.

Afterword

I would like to add one more idea, an even simpler test to check whether or not a statement made about Bitcoin is worth considering: Given a proclamation about Bitcoin, could the same proclamation be made about Dogecoin? Or Bitcoin Cash? Or any trivial clone of Bitcoin’s codebase? If yes, then the statement can be immediately discarded. If not, then is the distinguishing factor enough to make the statement true by itself? I’ll leave you to ponder that question.