What Will Happen to Bitcoin After All 21 Million are Mined?

Feb 11, 2021 | Decrypt News | 0 comments

what-will-happen-to-bitcoin-after-all-21-million-are-mined?

There are 21 million Bitcoin. That’s it. Once they’re all mined, which should occur in around 2140, no new Bitcoin will enter circulation.

The Bitcoin blockchain was designed around the principle of controlled supply, which means only a fixed number of newly minted Bitcoin can be mined each year until a total of 21 million coins have been minted.

Why is Bitcoin’s supply limit set to 21 million?

Once all 21 million BTC have been mined, the network will largely operate the same as it does now, but with one crucial difference for miners.

When will the last Bitcoin be mined?

Approximately every ten minutes, Bitcoin miners ‘discover’ a new block, solving a cryptographic puzzle that allows the successful miner to add the newly discovered block to the blockchain. This block is filled with transactions that were previously waiting in the Bitcoin memory pool, usually chosen based on the size of the transaction fee they provide to miners.

In return for discovering a block, the miner receives a fixed Bitcoin block reward. When Bitcoin first launched, the reward was set at 50 BTC—but it halves periodically, after 210,000 new blocks have been discovered.

That happens roughly every four years, reducing the reward to 25 BTC, 12.5 BTC, 6.25 BTC, and so on. Three halvings have been completed so far; the most recent Bitcoin halving occurred in May 2020, cutting the block reward to 6.25 BTC. The next halving is expected to occur in 2024.

The final Bitcoin halving block had a secret message

Bitcoin miners will be able to continue earning block rewards until a total of 21 million BTC has been minted, after which no new Bitcoin will enter circulation. Currently, just over 18.5 million BTC has been produced, equivalent to minting 88.3% of the maximum supply in just over a decade. But it will take another 120 years before the last Bitcoin ever is minted, due to the gradual reduction that occurs every four years as a result of the halving process.

What will miners do when all the Bitcoin has been minted?

Once all 21 million Bitcoin have been minted, Bitcoin miners will still be able to participate in the block discovery process, but they won’t be incentivized in the form of a Bitcoin block reward. That’s not to say they won’t be rewarded at all, though.

As well as block rewards, Bitcoin miners also receive all the fees spent on the transactions included in each newly discovered block. Currently, transaction fees make up a small proportion of a miner’s revenues, since miners currently mint around 900 BTC (~$39.8 million) a day, but earn between 60 and 100 BTC ($2.6 million to $4.4 million) in transaction fees each day. That means transaction fees currently make up as little as 6.5% of a miner’s revenue—but in 2140, that’ll shoot up to 100%.

“Changes to the Bitcoin ecosystem could drive significant changes in miner adoption even after the block rewards stop”

Losing the block reward won’t disincentivize miners, according to Simon Kim, CEO of VC fund #Hashed. “Changes to the Bitcoin ecosystem and its place as a key currency in the virtual world could drive significant changes in miner adoption even after the block rewards stop,” Kim told Decrypt

Transaction fees peaked during 2017

It’s true that switching to a reward structure based purely on transaction fees would almost certainly decimate the mining network now, since few Bitcoin miners would be able to profitably mine Bitcoin if they received just 6.5% of their typical rewards.

However, if the usage of the Bitcoin network were to explode, then competition for block space could increase dramatically. According to ByBit CEO Ben Zhou, that would likely lead to increased transaction fee rewards for miners—similar to what was seen during Bitcoin’s 2017 bull run.

Is Bitcoin Mining Still Profitable in 2021?

“As rewards for mining decrease upon each halving, and long before the last bitcoin is mined, transaction fees will play a more and more prominent role,” said Zhou. “Transaction fees will likely grow in an inverse correlation to, and as a compensation for, the diminishing mining returns.”

Moreover, Crypto.com COO Eric Anziani suspects that Bitcoin’s price growth and gradually reducing energy costs could mean that mining will remain a profitable endeavor.

“In our view, as the adoption of Bitcoin and cryptocurrencies grows, its price should also increase considerably, which will more than make up for the lower rewards per block,” he said. “Furthermore, as the mining process becomes more efficient and renewable energy becomes ubiquitous, miners’ electricity costs will fall, allowing them to stay in business and continue to secure the network.”

Average Bitcoin transaction fees up over 2,000% in 2020

At its peak in December 2017, the total transaction fees paid per day spiked to 1,495 BTC at a time when Bitcoin was valued at $14,000. As a result, miners earned a total of $21 million in transaction fees that day—which is currently around half of what they earn from the block reward today, indicating that something similar could occur in the future.

Indeed, as the price of Bitcoin soared in October 2020, transaction fees increased around ninefold in two weeks, peaking at around $14. Now, the average transaction fee sits at just north of $17 or a third of what they were during the December 2017 peak.

Another possibility on the cards is that the reward mechanism for Bitcoin could change some time before the final block is mined. Luka Boškin, CMO of crypto trading platform NewsCrypto, argued that as the number of BTC produced through mining decreases, Bitcoin will undergo “significant changes” to its protocol. “That could eventually include a switch to a more environmentally-friendly consensus mechanism like proof of stake or another successor to proof of work,” he told Decrypt.

This is a view shared by Niklas Nikolajsen, the founder of Swiss crypto broker Bitcoin Suisse. In an interview originally shot for German TV show Galileo, Nikolajsen was quoted as saying “I’m sure, once [proof of stake] technology is proven, that Bitcoin will adapt to it as well.”

However, as of February 2021, work is not underway to bring proof of stake to Bitcoin, and there are no Bitcoin Improvement Proposals (BIPs) tabling the change either.

On the other hand, Skrill’s head of crypto Jordan Stoev believes that the Bitcoin mainchain will likely be reserved for significant value transfers and that layer 2 solutions or alternate blockchains will be used for the bulk of transfers. “Only transactions of very significant value will remain to be performed on-chain and they will pay very big transaction fees that will constitute the income to the miners,” Stoev told Decrypt.

News Source from Decrypt.co

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