4 January 2021
With around 18.5 million bitcoin having already been mined, we are nearing the limit of the 21 million cap. But what actually happens when we have mined all of the bitcoin? Let us find out.
First off, a quick refresher on bitcoin mining: much like gold, bitcoin cannot arbitrarily be created and needs to be “extracted”. While gold is extracted from mines, bitcoin is extracted through computational means. It is estimated that a block is added to the bitcoin blockchain every 10 minutes, and this will continue to happen until we reach our limit of 21 million bitcoin. It is important to note that every year, we produce 50% fewer bitcoins than we did the year before. This is due to something called halving; when the rewards for mining a block are cut by half in order to slow down production. While the first 18.5 million bitcoin were mined in 11 years, is estimated that we need around 120 years to mine the remainder.
Back to what happens when we “run out” of bitcoin to mine! Here is what to expect:
The effect on miners:
Without any incentive for mining, some think that miners would no longer be driven to support the network and may abandon their work. This would compromise bitcoin’s decentralized nature since miners adding blocks to the chain is what keeps it decentralized. However, the truth is that while miners would no longer be earning any bitcoin as a reward, validating transactions still carries a small fee. This fee can be earned even after the last bitcoin has been produced. Moreover, this fee (which now stands at hundreds of dollars) could potentially grow immensely as the price of bitcoin rises.
Additionally, rapid advancement in mining technology suggests that mining could become easier over the next few years. This would lower the cost of mining and increase profitability — even for small scale miners.
The effect on bitcoin owners:
Bitcoin’s price is expected to rise as we approach its cap. This is based on the economic principle of scarcity; as an asset becomes more rare, it becomes more valuable. Bitcoin has seen a huge rise in pricing over the past six months and is expected to continue to do so as it gains utility in the world. This level of utility is only expected to increase as more and more businesses and institutions adopt cryptocurrency which translates into a very valuable and scarce asset.
As bitcoin’s supply is exhausted, the demand for it is bound to increase. This ought to lead to a spike in its price.
Lastly, it’s going to take a while.
Currently, it is estimated that the last bitcoin will not be mined before the year 2140. In the time before that, miners will spend years receiving rewards that are a tiny portion of the final bitcoin. With more than a hundred years to go, it is likely that the cryptocurrency community and bitcoin developers will have clearer answers to the questions regarding what will happen after all the bitcoin has been mined.
Though we may not know exactly how bitcoin will fare after the last bitcoin has been mined, it is safe to presume that scarcity along with continued incentives for miners on the blockchain are enough to secure continuity of the chain. As the supply of bitcoin dwindles, demand should rise making the coin more valuable and sought after. Despite the fact that bitcoin miners will no longer be earning their reward in bitcoin, they would still secure transaction fees that will hopefully be desirable enough to keep them aboard the network. With more than a hundred years to go before the last bitcoin is mined, a lot could happen to maintain the network.