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The biggest problem with Bitcoin is that there are only 21 million of them. This problem will be noticed when the last Bitcoin is mined. Even today, Bitcoin remains the most popular cryptocurrency in the world and is used by a large number of investors as a money-making machine in the global market. It can be obtained through mining. However, due to its deflationary nature, the supply of the currency is extremely limited. Yes, there are only 21 million Bitcoins that can be mined, and this limit usually triggers a new debate about what will happen after all Bitcoins are mined. Before we go into detail, let's take a look at where we stand today.
January 13, 2018 marked a significant milestone in the Bitcoin ecosystem as the total number of Bitcoins that have been mined reached 16.8 million. This milestone is indeed significant as it translates to 80% of the total Bitcoins that have been mined to date. With only 20% of the mining supply left, calculations predict that by 2140, miners will be able to reach the limit of 21 million Bitcoins.
So, the question arises again, what happens then? Can the Bitcoin ecosystem survive after this? Will it still be profitable for miners?
Before we get to the answer, let us first understand how Bitcoin mining actually works.
How Bitcoin Mining Works <br />Bitcoin mining is a process of calculating hash functions in which computers are used to solve complex algorithms. With each successful solution, a new block of certain transactions is created and added to the blockchain. The blockchain is actually a public record of all Bitcoin transactions.
When Bitcoin transactions occur, first they are broadcasted through the network and then they are added to the blockchain by miners. Therefore, the hash function plays a vital role in determining which transactions will get priority, because if all transactions cannot be matched to a block. If the mining process stops, the entire system may collapse.
To compensate miners for their efforts, new Bitcoins are awarded to them. In addition, miners receive specific transaction fees associated with all transactions they confirm in a particular block. This means that miners get paid twice:
1. Mining new Bitcoins 2. Collecting transaction fees <br />This process seems pretty smooth and easy for us to understand. Interestingly, there is a limit to the total number of Bitcoins that can be mined, which raises the questions we talked about earlier in the introduction. So, let's try to find some answers.
What will happen to miners if all 21 million bitcoins are mined <br />Perhaps the immediate impact of bitcoin’s supply limit will depend on the miners themselves. Critics say that once we mine the last bitcoin, miners will no longer be able to receive a large reward for the mining work they perform. And, if that happens, miners may have to rely on transaction fees to stay in business.
This argument is driven by the idea that miners will find all this unaffordable and therefore only a subset of miners will remain. The assumption of this argument is that transaction fees alone will not be enough to keep miners financially solvent after the mining process is complete. However, it is very likely that in the future mining costs and transaction fees will break even.
It is not difficult to imagine that mining chips will become more efficient in a few decades. As a result, the burden on miners will be greatly reduced, making mining possible with a meager initial cost. In addition, transaction fees are expected to increase, making it easier for miners to survive. The next mining reward halving process will occur on May 24, 2020. Halving is a complex factor in Bitcoin mining. Right now, the reward for one block is 12.5 Bitcoins, but in May 2020, this number will become 6.25 Bitcoins. Halving occurs approximately every 4 years. Therefore, the Bitcoin mining reward will tend to zero.
How it will affect the price of Bitcoin <br />There are already several factors that have driven the price of Bitcoin to surge to new all-time highs in a matter of months. While no one can know for sure how the crypto coin will continue to spread across the greater financial markets, it seems likely that the limited supply of the currency will cause its price to continue to rise.
Furthermore, there are piles of Bitcoins around the world that will never move. And, the largest number of these Bitcoins belongs to Satoshi Nakamoto, who actually created Bitcoin.
It may have been deliberately withheld at a time when global demand for Bitcoin is surging.
How does Bitcoin survive after it is mined?
Well, basically, there are three key pillars that we can expect the Bitcoin ecosystem to continue to function once we have the last Bitcoin mined and the Bitcoin supply reaches its maximum limit. Below is a look at them and how they help maintain the functionality of the ecosystem.
1. Transaction Fees <br />Miners who are a part of the Bitcoin network are not only used to mine new blocks but also to confirm transactions. Anyone interested in making a Bitcoin transaction is obliged to pay a certain transaction fee. Moreover, when someone is interested in making a fast transaction while skipping the queue, they also have to bear some additional costs.
As the Bitcoin network continues to gain popularity, we also see these fees rising as well. Although they are very low compared to the hash rewards, we can expect them to rise over time. Therefore, we can expect transaction fees to grow enough in the future to ensure that miners continue to stay on the Bitcoin network and the network continues to thrive. 2. The value of Bitcoin <br />Ideally, the value of Bitcoin would need to increase significantly. In fact, this would be the only option for transaction fees that would be enough to incentivize miners. Interestingly, Bitcoin is structured in such a way that its value continues to rise regardless of how many Bitcoins are mined, or how many Bitcoins are left to be mined.
Since the currency supply is limited, it is certain that the demand for Bitcoin will increase, and as the demand increases, the value automatically rises. In turn, the increase in the value of the currency will increase the fees that miners can earn. In addition, with a higher Bitcoin value, users will be ready to pay higher fees to ensure that their transactions are confirmed quickly.
3. Mining costs <br /> As technology continues to develop, we may see mining costs drop significantly in the future. And, when it happens, it will also lead to a significant reduction in the speculation of miners' transactions. With lower operating costs, even lower returns than today will be accepted, as a higher return on investment will still make the business profitable.
Our final conclusion is that even if the total amount of Bitcoin mining reaches 21 million and there are no more block rewards, Bitcoin miners actually have several ways to remain profitable. As block rewards will gradually decrease, miners will have enough time to adapt to the new cycle based on transaction fees rather than income generated by the Bitcoin they mine. (Caiyun Blockchain) |
