Bitcoin is like digital gold in many ways. Like gold, bitcoin cannot simply be created arbitrarily, it requires work to “extract”. Gold must be mined out of the ground, and bitcoin must be “mined” via computational means. Linked with this process is the stipulation set forth by the source code of bitcoin that, like gold, it must have a limited and finite supply. In fact, there will only ever be 21 million bitcoins ever produced, and these are introduced to the bitcoin supply at a fixed rate of one block every ten minutes, on average. Moreover, the amount of bitcoin released in each of those blocks is reduced by half on an every four year schedule.
- There are only 21 million bitcoins that can be mined in total.
- Once bitcoin miners have unlocked all the bitcoins, the planet’s supply will essentially be tapped out, unless bitcoin’s protocol is changed to allow for a larger supply.
- Supporters of bitcoin say that, like gold, the fixed supply of the currency means that banks are kept in check and not allowed to arbitrarily issue fiduciary media.
- Miners will still be incentivized to validate the bitcoin blockchain because they will collect transaction fees from users.
21 Million Supply
In fact, there are only 21 million bitcoins that can be mined in total.1 Once miners have unlocked this many bitcoins, the planet’s supply will essentially be tapped out, unless bitcoin’s protocol is changed to allow for a larger supply. Supporters of bitcoin say that, like gold, the fixed supply of the currency means that banks are kept in check and not allowed to arbitrarily issue fiduciary media. What will happen when the global supply of bitcoin reaches its limit? This is the subject of much debate among the followers and aficionados of all things cryptocurrency.
Currently, around 18.5 million bitcoin have been mined, leaving under three million more to be introduced into circulation. To better understand what will happen with these remaining bitcoin as well as when and how the network will have mined its last tokens, we’ll need to explore some of the details of the mining process itself.
While there can only ever be a maximum of 21 million bitcoin, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available bitcoin in circulation could actually be millions less.
Bitcoin Mining Rewards
With the first 18.5 million or so bitcoin mined in just a decade since the launch of the bitcoin network, and with only three million more coins to go, it may seem like we are in the final stages of bitcoin mining. This is true, but only in a certain sense. While it is true that the large majority of bitcoin has already been mined, the timeline is more complicated than that.
The bitcoin mining process which rewards miners with a chunk of bitcoin upon successful verification of a block adapts over time. When bitcoin first launched, the reward was 50 BTC. A few years later, in 2012, it halved to 25 BTC. In 2016 it halved again to 12.5 BTC. On May 11th 2020, the reward halved again to 6.25 BTC. Miners currently receive this reward when they are successful in their efforts.
It will continue to halve every four years or so until the final bitcoin has been mined. What this means is that the reward for miners gets smaller and smaller over time, and it also takes longer to reach the final bitcoin than it may seem based on the pace so far. In actuality, the final bitcoin is unlikely to be mined until around the year 2140, unless the bitcoin network protocol is changed in between now and then.
The bitcoin mining process provides bitcoin rewards to miners, but the reward size is decreased periodically to control the circulation of new tokens.
Effects of Finite Bitcoin Supply on Bitcoin Miners
It may seem that the group of individuals most directly affected by the limit of the bitcoin supply will be the bitcoin miners themselves. On one hand, there are detractors of the protocol who say that miners will be forced away from the block rewards they receive for their work once the bitcoin supply has reached 21 million in circulation.
Without the incentive provided by a prize of bitcoin at the end of a rigorous and costly mining process, miners may not be driven to continue to support the network. This would have disastrous effects for bitcoin. Because mining is not just a process by which new tokens are introduced into the ecosystem, but it is first and foremost the way in which the decentralized blockchain is supported and maintained absent a central bank or other single authority, if miners abandon their work the network will likely move toward centralization or collapse entirely.2
Even when the last bitcoin has been produced, miners will likely continue to actively and competitively participate and validate new transactions. The reason is that every bitcoin transaction has a small transaction fee attached to it. These fees, while today representing a few hundred dollars per block, could potentially rise to many thousands of dollars or more per block as the number of transactions on the blockchain grows and as the price of a bitcoin rises. Ultimately, it will function like a closed economy where transaction fees are assessed much like taxes.
However, it’s worth noting that it will be well over 100 more years before the bitcoin network mines its very last token. In actuality, as the year 2140 approaches miners will spend years receiving rewards that are actually just tiny portions of the final bitcoin to be mined. The dramatic decrease in reward size may mean that the mining process will shift entirely well before the 2140 deadline.
It’s also important to keep in mind that the bitcoin network itself is likely to change significantly between now and then. Considering how much has happened to bitcoin in just a decade, hard forks, new protocols, new methods of recording and processing transactions, and any number of other factors may impact the mining process. Even more generally, at some point before 2140 bitcoin may very well fall entirely out of favor, essentially rendering moot the entire thought experiment about what happens after the last token is mined.
By ADAM HAYES