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Ethereum: Simplifying the 21 Million Limit
A frequently convoluted topic in the cryptocurrency world is the limit imposed by the Ethereum network to prevent a person from having too much balance or “reaching the limit”. Specifically, we’re talking about the 21 million Bitcoin limit that a single address can hold.
What’s the problem?
Imagine you have a huge collection of gold coins, and there’s no limit to how many you can hold. Sounds great, right? But what if someone were to try to accumulate as much gold as possible while others were trying to sell it at the same time? They’d be left with nothing, and their wallet would become worthless.
Similar to cryptocurrencies, this problem is known as the “token shortage” problem. When a person tries to acquire too many tokens (or Bitcoins), they’re essentially competing with other users for a limited number of spots on the network. This can lead to a situation where some users will be left with empty wallets.
Limit Enforcement
So how is this limit enforced? The answer lies in a few simple concepts:
- Tokenomics: The core Ethereum blockchain protocol defines the tokennomics that govern the behavior of tokens on the network. One of the key aspects of tokenomics is the “block reward” system.
- Gas: When a transaction occurs on the Ethereum network, it requires computational energy (gas) to be validated and processed. This energy is typically paid for by users who validate transactions using their wallet balances or other means. The 21 million token limit affects the number of gas units that can be allocated for new blocks.
- Smart Contract Limit: When a user tries to add new tokens to the network, they must wait until a slot becomes available in the transaction pool (i.e. the “block reward” system). If there are no slots available, users cannot add their tokens.
Simplified Math
To make this even clearer:
Imagine you’re at a coffee shop with 10 friends. You want to buy a new coffee that costs $5 per cup. The barista only accepts cash, which can go into your wallet until it’s gone or someone pays for their drink.
Similarly, with Ethereum, users are limited by the total number of tokens available (21 million) and the available slots in the transaction pool. When a user tries to add new tokens, they’re essentially saying, “I want to buy a $5 coffee” — but there aren’t enough wallets or transactions to cover all of those $5.
Result
In short, the 21 million limit is enforced by a combination of tokenomics (the scarcity of tokens), gas distribution, and smart contract constraints. This allows users to securely store their tokens without overwhelming the network with an excessive amount of cryptocurrency.
