Changing Bitcoin’s 21 million cap
The original Bitcoin specification established a maximum of 21 million units. Could this maximum limit be changed? As long as the software is not secretly changed without releasing a new version, the answer is a big and resounding no. For sure a new version could be released, but that’s not a change of the thing but a new thing. Bitcoin is a fully opensource software and as such anyone can propose a new version . The question is, who would use that new version?
In my view, for the same reason that no one is obliged to use the current 21 million version as it is a totally voluntary decision, it is not possible either to force any user to use a new version with 42 million units. Many people tend to think that the miners have the power to dictate protocol changes, which is not true. The main role of the miners is to avoid double spends, mining new bitcoins is just a temporary role for bootstraping. Miners do not have more power than any other bitcoin user to change the rules. What they can do is signaling support or not for a specific proposed change and expect that big players and users will follow (full nodes, exchanges, wallet providers, wallet users, etc).
If all the miners signal support for a change to 42 million units, but users remain in the 21 million version, the miners will fail miserably and will quickly run back to the version supported by users.
What miners or any other interested group could try is to promote a different version that could have a different maximum cap or not, or a different issuance model (for example a fixed issuance of 2% in relation to previously issued quantity), or any other additional feature, and then expect that users will find that version more useful. That already happened, and that is competition, which is positive. The market will select the most useful alternative. In this respect it is important to note that being Bitcoin a protocol, similar to TCP/IP, users might decide to remain in the old version for schelling point / network reasons (liquidity for Bitcoin’s case) even if the new version is better, so a rather significant improvement is needed in order to trigger a widespread change, and assuming as well that those improvements cannot be implemented in additional layers, similar to tcp/ip stack.
Another more aggressive approach would be a social attack to convince big players and users to update to the new version, using many different justifications and / or combining it with new features. I don’t think that would be an easy task at all, but anyhow this approach is not a specific bitcoin vulnerability because anything is vulnerable to a social attack. Gold itself has been succesfully targeted by social attacks led by banking cartels, academia and governments through fraud (unathorized fractional reserve), coin dilution, confiscation, taxation and negative propaganda.
So assuming that Bitcoin has the necessary properties for being good money, and that’s a bold assumption, the question is if Bitcoin could be successful where gold failed during the last 80 years. Gold has a very big problem, and that problem is that for being easily portable (digitized) it needs to be rather centralized, and that makes it much more vulnerable to attacks, specially considering that the legal system necessary to enforce digitized gold claims is highly influenced by governments (see the case for e-gold). Bitcoin is natively digital and distributed, so it has more chances to dodge closure or co-opting. However governments could for sure try to corner Bitcoin through taxation, coertion and propaganda.
Bitcoin’s major strength on my view is not only that it is distributed (I prefer that term over decentralized), but that it is fully open to anyone to develop solutions and services on top of it, it is not necessary to ask permission to SWIFT, Visa or your bank for API connection and authorization, so it is fully open to innovation. At this stage Bitcoin is quite limited, but layer 2 solutions are quite promissing so new services based on nanopayments or streaming money could be developed. These are just examples that will probably prove stupid in the future, we don’t know what innovations will be successful, the point is that the possibilities and ease for innovation are far superior in an open, free and competitive environment than in a vetted, closed and endogamous system.
There is also another important Bitcoin strength that I have mentioned in previous posts which makes Bitcoin more efficient and easy to deploy than fiat or gold backed currencies, and it is the fact that Bitcoin not being anyone else’s liability, it does not need to make use of legal infrastructure in order to have value (i.e. a mechanism to enforce backing assets) or to underpin transaction settlement.
If the two above strenghts bring forth an overwhelming new businesses and new use cases, then it could become much more difficult for governments to justify its opposition, so they would have to retort to more nuanced attacks such as fractional reserve banking, Bitcoin IOUs, etc. But I’ll leave that for another post.