How is the supply of Bitcoin limited?

The supply of Bitcoin is limited through a combination of factors:

1. **Fixed Supply Cap:** The total supply of Bitcoin is capped at 21 million coins. This limit is hard-coded into the Bitcoin protocol and cannot be altered without widespread consensus among the network participants. Once 21 million bitcoins have been mined, no more new bitcoins can be created.

2. **Halving:** The rate at which new bitcoins are introduced into circulation is halved approximately every four years through a process known as "halving." Initially, when Bitcoin was launched in 2009, the block reward for miners who successfully validate transactions and add them to the blockchain was 50 bitcoins per block. However, this reward is halved every 210,000 blocks, which occurs roughly every four years. As of the latest halving in May 2020, the block reward stands at 6.25 bitcoins per block. This halving mechanism ensures that the issuance of new bitcoins decreases over time, leading to a gradual reduction in the rate of supply growth until it reaches zero.

3. **Decentralized Consensus:** Changes to the Bitcoin protocol, including alterations to the supply limit, require consensus among network participants. Bitcoin operates on a decentralized network of nodes, miners, developers, and users, and any proposed changes must undergo rigorous scrutiny and gain widespread agreement from these stakeholders. This decentralized consensus mechanism ensures that the supply limit remains intact and cannot be arbitrarily changed.

These factors work together to create a deflationary monetary system where the supply of Bitcoin is limited, predictable, and gradually decreasing over time. This scarcity is one of the key attributes that contribute to Bitcoin's value proposition as a digital store of value and hedge against inflation.