About every four years, the number of bitcoins that reward the mining of the next block is halved. At first, it was 50 bitcoins, then 25, and then 12.5. In 2020, it will already be 6.25 bitcoins. If governments are constantly increasing their money supply, the Bitcoin algorithm works in the opposite way, preventing inflation.
At some point, probably around 2140, the last bitcoin will be mined. However, this does not mean that the network will collapse. In addition to the rewards for computing hashes, miners receive transaction processing fees. Now, these fees are small, about a fraction of a percent. However, as the remuneration for the calculations of new blocks decreases, the fee for processing transactions will grow along with the cost of bitcoin.
These fees should be maintained at a level that continues to give miners motivation. Although new bitcoins will stop to appear, bitcoin miners will still receive money.
Some miners will be forced out of the market. As bitcoin is becoming increasingly difficult to mine, miners have to use increasingly efficient equipment for this. The thing is energy consumption. When using insufficiently efficient equipment, the electricity bill may be so big that the miner will be at a loss. So, mined bitcoins will not cover the costs.
What Does Lost Bitcoin Mean For The Rest Of The Bitcoin Network?
Lost bitcoin increases the value of the remaining bitcoin on the network. Bitcoin is infinitely divisible, so lost bitcoin does not harm the network as a whole. Furthermore, because Bitcoin derives value from its absolutely finite supply, every lost bitcoin will slightly increase the value of remaining bitcoin in the network.
When is Bitcoin Considered “Lost”?
Bitcoin is considered lost when it can no longer be spent by anyone. Bitcoin is controlled by private keys, much like physical keys control money in a safe or vault. Private keys create signatures, which are required to spend bitcoin. Without the private key, no signature can be created, and all funds linked to that key are unusable. Accordingly, the simplest way to avoid losing bitcoin is to safeguard private keys.
Bitcoin’s Blockchain Relies on Mining to Function
Mining rigs power the blockchain ledger, verify transactions and keep track of coins and wallets.
Once a Bitcoin investor knows the basics of how bitcoin operates it doesn’t take long until one question will inevitably enter their mind…
What Happens When the Bitcoin Mining Stops?
In short, there are two underlying features of Bitcoin which would seem to indicate trouble ahead:
- Bitcoin is Finite. Bitcoin was designed from the outset as being a finite asset. It’s anonymous creator set a seemingly arbitrary figure of 21 million as the maximum amount of Bitcoins capable of ever being mined.
Unless the whole system is reprogrammed, which would effectively devalue all the Bitcoins that had gone before, when we reach 21 million, that’s it – game over – no more freshly minted Bitcoin.
- Bitcoin Mining Verifies Transactions The complex mathematical problems mining rigs solve to earn fresh Bitcoin are the glue that holds together the blockchain. Each and every transaction is verified and permanently stored on the blockchain as a result of this mining activity.
If mining no longer generates new Bitcoins as a reward why would miners continue the resource hungry work of verifying transactions?
The bitcoin system is designed to operate entirely as a function of the Bitcoin system operating – a kind of self-perpetuating feedback loop.
It stands to reason that if Bitcoin mining stops then you’d expect there to be a catastrophic effect on the rest of the system.
After all mining is central to blockchain function much as our heart is central to being alive.
So here’s the rub: We’re looking at a built-in fixed limit of 21 million Bitcoin. At the time of writing we’ve already seen 18.2 million mined – leaving only 2.8 million to go – so what’s next?
When the Mining Stops: The Mildly Uncomfortable Answer
When the last Bitcoin is minted, Bitcoin miners are going to need to rely on bitcoin transaction fees.
Bearing in mind that by the time this happens the mathematical problems mining rigs will need to solve in order to keep the blockchain ledger running will be exponentially harder than they are now. Computing power is constantly increasing to match, but one unavoidable issue when it comes to computing power is the word power.
That power is supplied by electricity – and the greater the need for complex calculations, the more power a computer is going to suck out of the electrical grid. Electricity costs money, as do the mining rigs miners use to maintain the blockchain – and miners are not a charity.
Will relying solely on transactional fees be enough to keep mining profitable? And wasn’t the whole purpose of Bitcoin to provide a low-fee frictionless medium of exchange?
To answer this we need to add multiple assumptions together and hope that it all works out – else we’re going to see miners quit in their droves, a possible centralization of Bitcoin and even see the collapse of the entire Bitcoin network.
We Need Electricity to Become Cheaper
In our near future we’re going to need to harness a cheap, renewable and permanently sustainable source of electricity.
Whether that will involve solar, wave, geothermal or wind – or we’ll be plugging our DeLorean into a personal fusion reactor is anyone’s guess, but it’s going to need to be cheap.
If you can picture our energy companies sharing all this expensive development of new energy sources with us at low cost, then we could see Bitcoin miners continue to flourish without seeing unreasonable fees charged.
We Need Computing to Become More Efficient
Powerful computers by definition use a lot of power – but what if we could make powerful computers less energy dependent?
Unless we use a different method to run calculations through a chip, redesign chips to operate in a different fashion, or come up with a wholly new type of computer – we are stuck with physics: power out will never exceed power in.
Advances in quantum computing and organic-based computers suggest we’re not far away from the next generation of computational power, but whether this comes before or after the final Bitcoin is mined is something only time will tell.
We Need Near Global Uptake of Bitcoin
The other possibility is Bitcoin becomes the new global currency – or at least enough people start using it to make micro-payment fees profitable.
In theory if everyone uses bitcoin then thanks to scale, fees on their own could result in big profits – even if these transaction fees were tiny.
The reality however is that if Bitcoin does see an exponential increase in usage then the blockchain would also grow exponentially and with that required computing power, electricity use… and so on.
Back to where we started.
The Bitcoin community isn’t concerned – they’ve worked out that if we see slightly lower electricity prices, slightly more efficient computers and a moderate increase in fees – then everything should all work out fine.
Operative word being should.
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