With the accumulation of over 19 million mined bitcoins and the upcoming occurrence of the next Bitcoin halving within a year, a thought-provoking inquiry emerges: What unfolds in the aftermath of all bitcoins being mined?
The daily average of mined bitcoins stands at approximately 900, marking the progress toward the 21 million total.
The imminent Bitcoin halving, anticipated in 2024, will witness the reduction of the current 6.25 BTC reward to 3.125 BTC.
When the complete 21 million bitcoins are mined, stakeholders encompassing Bitcoin miners, retail and institutional investors, and governments are poised to experience noteworthy effects.
Remaining Bitcoins for Mining: An Overview
As of June 2023, the circulation of bitcoins has reached around 19.402 million, signifying that merely 1.59 million bitcoins remain available for mining. On a per-hour basis, approximately 37.5 bitcoins are mined, translating to a daily production of 900 BTC. It's important to note that the term "lost" in relation to bitcoins pertains to instances where owners have misplaced their private keys, leading to the permanent locking away of their Bitcoin holdings.
Bitcoin's Halving: A Look at the Events
The practice of halving within the Bitcoin network involves the reduction of available bitcoins entering circulation by half every 210,000 blocks, which occurs approximately every four years. This approach indicates that the final Bitcoin will be mined by the conclusion of 2078, marking the end of the potential for further bitcoin mining.
Nonetheless, there's some confusion surrounding the precise date for when the entire Bitcoin supply will be mined. While a Google search might indicate the date as 2040, the accurate year is actually 2078.
The initial reward for mining was set at 50 BTC per block upon Bitcoin's inception in 2009. The first Bitcoin halving in November 2012 reduced the reward to 25 BTC per block. Subsequent halvings in July 2016 and May 2020 further decreased the block rewards to 12.5 BTC and 6.25 BTC, respectively. Forecasts predict the next Bitcoin halving to occur on June 5, 2024, bringing down the block reward to 3.125 BTC. As of June 15, 2023, the current block count stands at 794,416, with 45,584 blocks remaining until the subsequent halving at 840,000 blocks.
The Rationale Behind Bitcoin's Supply Limit
Back in 2008, Bitcoin's enigmatic creator, Satoshi Nakamoto, made a resolute decision: to set an unchanging cap of 21 million bitcoins, guaranteeing a virtual currency immune to inflation. However, much like traditional paper currency, an excessive supply of bitcoins circulating in the market could lead to unpredictable and extreme fluctuations in BTC prices.
To prevent this, Satoshi implemented the 21 million Bitcoin limit as a means of managing the supply and, in turn, regulating future Bitcoin price stability.
To achieve this balance, Satoshi introduced a controlled release of bitcoins, rather than inundating the market with the entire 21 million supply all at once. The architecture of Bitcoin's code was crafted to ensure a fixed quantity of bitcoins could be mined each year until the total of 21 million was attained.
As the Bitcoin blockchain grows, newly minted bitcoins come into circulation with the addition of each new mined block. Bitcoin mining is underpinned by a complex mathematical algorithm designed to maintain system stability by sustaining a 10-minute interval for block discovery. This algorithmic difficulty is recalibrated every 2,016 blocks, approximately every two weeks, as the network assesses the collective mining activity. Subsequently, the network adapts the Bitcoin mining difficulty to uphold an average block generation time of around 10 minutes.
The Total Count of Bitcoins
With the gradual approach of the Bitcoin mining endpoint, the number of available Bitcoin blocks for mining diminishes each day. However, it's crucial to grasp that not all the Bitcoins mined thus far are actually in circulation, thus further reducing the overall supply available at any given moment. Several factors contribute to the disparity between the existing supply of Bitcoins and the total number mined.
One prime factor is the storage method employed for Bitcoin. Since Bitcoin owners must safeguard their holdings with passwords and wallets, should an owner pass away without sharing access to these keys, the stored Bitcoins become inaccessible. Furthermore, various errors on the part of owners can also lead to Bitcoins becoming permanently irretrievable. Unlike conventional assets, this innovative digital currency is distinctive in its near-impossibility of recovery without the owner's consent.
Based on recent research conducted by the New York Times, nearly 20% of Bitcoins are held in inaccessible wallets, with an estimated cumulative value of approximately $140 billion. These locked Bitcoins are expected to remain inaccessible indefinitely, consequently impacting the total circulating supply.
So, the next time the question arises regarding the quantity of Bitcoins in circulation, the answer lies in the circulating supply. As of the current juncture, this figure stands around 19.4 million, excluding any Bitcoins trapped within inaccessible wallets.
Even in the absence of trapped bitcoins, attaining the precise supply limit of 21 million once all bitcoins have been mined remains theoretically unattainable. In practice, the final tally will approach Bitcoin's supply cap very closely, as Bitcoin's supply is inherently defined in non-exact terms. The underlying code of Bitcoin employs rounding off decimal points to the nearest whole number. Consequently, a quantity like 6.2589 bitcoins is presented as 6 bitcoins.
Bitcoins are subdivided into smaller units, referred to as satoshis, with one satoshi corresponding to 1/100 millionth of a Bitcoin. Due to the utilization of these smaller units and the rounding conventions, experts anticipate that the Bitcoin supply cap will effectively culminate at 20,999,999, a fraction below the symbolic 21 million figure.
Incentive to Increase Bitcoin's Total Supply
Bitcoin mining remains appealing due to the substantial incentive it offers miners to effectively generate the maximum available Bitcoin. This incentive, delivered through block rewards, not only grants miners Bitcoin but also a portion of the transaction fees linked to successfully completing a block.
Currently, following the three previous halvings, miners receive 6.25 BTC for validating a block. Despite the decrease in mining reward magnitude, the elevated value of each Bitcoin compensates for the impact of halving. Furthermore, the rising prominence of BTCUSDT has led to an augmentation in transaction fees. While it's anticipated that Bitcoin transaction fees will ascend, it's important to note that not all BTC transactions necessitate settlement on the blockchain. Supplementary layers like the Lightning Network present more cost-effective and rapid methods of transferring Bitcoin, likely contributing to widespread adoption.
Certain experts argue that the incentive issue might not be a cause for concern. They contend that transaction fees, constituting merely 6% of the current revenue for miners, will witness substantial growth, offsetting the diminishing Bitcoin block rewards. However, this response may not satisfy numerous stakeholders deeply involved in the Bitcoin sector. Their curiosity persists regarding the eventual consequences when all 21 million bitcoins are mined and the potential avenues to influence the future quantity of bitcoins.
Can the Bitcoin Supply Cap be Altered?
In theory, the total Bitcoin supply cap can be modified by making changes to the underlying code. Given that Bitcoin functions as software, experts acknowledge its potential for alteration. However, effecting such changes necessitates the consensus of developers, stakeholders, and the broader community. If a consensus is achieved, developers would draft code to implement the modifications within the Bitcoin Core.
The subsequent step involves ensuring that all nodes within the Bitcoin network embrace the changes or face exclusion. Nonetheless, garnering unanimous acceptance for changes is a complex undertaking, as Bitcoin was initially designed as a self-contained system that requires minimal modifications. This juncture could lead to a hard fork, a consensus adjustment that validates a previously unacceptable behavior. In an ideal scenario, all nodes would upgrade to accommodate the proposed alterations.
Alternatively, a scenario might unfold in which a subset of Bitcoin users favors retaining the existing 21 million BTC limit. In this context, miners and nodes resistant to change would persist with the prevailing Bitcoin framework. This contingent could potentially compete with the new Bitcoin platform to gain market presence. Termed a contentious hard fork, this scenario leads to the creation of a parallel chain, fragmenting the miner community. An example of this is the emergence of Bitcoin Cash.
Implications for Stakeholders: The Post-Mining Era of Bitcoin
As the mining journey of Bitcoin draws closer to its conclusion, the landscape ahead remains uncertain, prompting various theories about the dynamics that will unfold once all 21 million bitcoins have been mined.
Several analysts advocate for the utilization of heightened transaction fees to counterbalance the absence of block rewards. Ongoing technological advancements are predicted to streamline mining expenses, ultimately bolstering miners' profits. Another hypothesis posits that Bitcoin platforms might transition to catering exclusively to significant, high-value transactions, generating ample revenue to appease stakeholders. Additionally, speculations circulate regarding the adoption of proof of stake (PoS) mechanisms and the emergence of mining cartels.
From the vantage point of stakeholders, the subsequent synopsis provides a glimpse of the post-mining era's potential impact on different stakeholders.
Miners play a pivotal role in validating transactions and appending new blocks to the Bitcoin network. This endeavor involves solving intricate mathematical puzzles using energy-intensive ASIC computers. In return for securing the network, miners receive block rewards and transaction fees.
Currently, miners and mining entities rely on the Bitcoin block reward system to offset expenses and realize profits. However, as mining rewards diminish, projections indicate that mining costs could surpass the BTC rewards well before the fixed supply is achieved. The potential decline in profitability could be counteracted by a surge in Bitcoin's price, though the current breakeven cost of mining hovers around $17,600.
This equation is poised to shift with the upcoming Bitcoin halving in 2024. Unless more efficient mining hardware or cost-effective energy solutions are devised, breakeven prices are likely to double. In a scenario where Bitcoin's price doesn't elevate sufficiently to meet these levels, a potential downward spiral could unfold as miners exit due to unprofitability. This could trigger a shortage of hash power, hampering the recalibration of mining difficulty.
Retail Investors and HODLers
As the Bitcoin mining capacity nears its ceiling, the value of Bitcoin is projected to escalate. Assuming sustained popularity, its scarcity and investment appeal could prompt individuals to regard Bitcoin as a store of value rather than a transactional instrument. Historical trends show that HODLers and retail investors tend to withhold bitcoins in their wallets, contributing to supply contraction and maintaining elevated value.
Increasingly, companies are venturing into the realm of cryptocurrencies, viewing Bitcoin as digital gold. Institutional investors are drawn to Bitcoin's scarcity, its potential to counter inflation, and its historical price trajectory. The dwindling supply of minable bitcoins could cement Bitcoin's status as an inflation hedge, akin to precious metals.
Governments are grappling with the dual nature of cryptocurrencies. While many remain cautious about endorsing them as legal tender, the global impact of cryptocurrencies on economies cannot be ignored. While El Salvador has adopted Bitcoin legally, other nations may follow suit or at least explore friendlier approaches. Governments might seek a middle ground, potentially approving Bitcoin ETFs and pursuing regulatory oversight. In response to the uncertainty surrounding the post-mining scenario, some governments might even introduce their own digital currencies, like CBDCs, as alternatives to Bitcoin.
Amidst Bitcoin's enduring popularity, the aftermath of the total supply depletion appears to hold nuanced prospects rather than an impending catastrophe. The adaptability of the Bitcoin ecosystem to evolving global economic shifts is likely to maintain its stable trajectory for the foreseeable future, provided that demand and traction remain intact.