Bitcoin mining was increasingly attractive due to the lucrative incentives for miners to maximize their Bitcoin yield. Starting at 50 Bitcoins every block back when it first launched, miners now earn 6.25 BTC for validating a block, a reward which has been halved thrice since Bitcoin’s inception. There are currently over 19.5 million Bitcoins currently in circulation, leaving 1.5 million yet to be mined before hitting the 21 million cap by the year 2140.
Bitcoins finite supply is a defining part of Satoshi Nakamoto’s decentralized protocol. In an effort to engineer the cryptocurrency with a predetermined limit, Bitcoin boasts scarcity which increases Bitcoins demand and value over time.
Miners decide to engage in the mining process for a variety of reasons, both financial and ideological. Here are the primary motivations:
The most obvious reason is the potential for profit. Miners receive block rewards every ten minutes at random and transaction fees from the blocks they successfully mine. Especially in the early days of cryptocurrencies like Bitcoin, many miners were attracted by the prospect of earning substantial rewards.
Cryptocurrencies offer a decentralized alternative to traditional centralized financial systems. By participating in mining, individuals contribute to this decentralization, ensuring that the network remains resistant to censorship and external control.
By mining and accumulating cryptocurrency, some miners view their activities as a long-term investment strategy, hoping that the coins they mine now will appreciate in value in the future. The below chart illustrates the hashrate that is currently securing the network.
A high hashrate on the Bitcoin network signifies its strength and robustness, instilling trust among investors about the network’s security.
While there might be occasional dips in the hashrate due to various reasons, they often represent temporary shifts. For instance, when China implemented a ban on Bitcoin mining, in 2021, miners adapted by relocating their operations, showcasing the resilience and adaptability of the Bitcoin community. Such moments emphasize the dynamic nature of the network and its ability to overcome challenges.
During bull markets as illustrated in the LookIntoBitcoin chart below, the rise in fees becomes a greater source of income for miners. This surge in fees corresponds with heightened Bitcoin demand, as newcomers engage in and conduct transactions on the network. Conversely, in bearish phases, fees as a portion of the total miner earnings tend to decline.
Some argue that the escalating transaction fees, which presently account for 5% of miners’ revenue (illustrated above), will balance out the declining block rewards in the future.
Bitcoin’s hard cap of 21 million isn’t explicitly stated in a single code line. The protocol behind the monetary policy of Bitcoin emerges from its initial block reward combined with the halving schedule. Initially, miners received 50 BTC for each block mined, and this reward halves every 210,000 blocks. By following this halving pattern, by the year 2140, over 99.99% of Bitcoins will be mined, and the reward will diminish to a point where it becomes negligible.
When an individual sums up the rewards from each of these halving periods, the total converges to the 21 million BTC cap. The built-in halving mechanism in Bitcoin’s code ensures that the minting of new Bitcoins will stop once this cap is reached. By 2140, miners will no longer earn block rewards, relying solely on transaction fees as compensation. This design guarantees that there will never exceed 21 million Bitcoins in circulation.
While the reward quantity has decreased over time, the soaring value of Bitcoin compensates for these reductions. Additionally, as Bitcoin becomes mainstream its transaction fees have also surged.
Bitcoin, often hailed as ‘Digital Gold’, possesses an intrinsic quality of scarcity with its fixed supply cap of 21 million coins. This design evokes an economic elegance, as it emulates the limited availability of precious resources in the universe. However, what unfolds when the last Bitcoin has been mined and miners can no longer receive block rewards? Why will miners continue to secure the network?
Here are some key reasons miners will continue to mine:
As miners pivot away from block rewards, the stakeholder who are deemed the lifeblood of the Bitcoin network, i.e. the miners will be incentivized primarily via transaction fees. This will ensure the network remains robust and continually processes transactions. It is expected that the transaction fee will be high enough in sats converted to the US dollar that the fee will be fair and justified.
Bitcoin’s finite nature might further solidify its role as a store of value. With no more inflow of new coins, scarcity could induce an appreciation in value, making it even more sought-after as a hedge against traditional fiat systems.
Although mining rewards will cease, the expectation is that transaction volumes would have grown exponentially by then, making fee-based mining still profitable and sustainable.
The crypto landscape is dynamic. It is likely that new layers or solutions are emerging to make the post-reward era more efficient and economical for all participants.
Technically, Bitcoin’s supply cap can be modified by changing its foundational code. While Bitcoin operates on software, any modifications necessitate consensus from developers, stakeholders, and the broader community. Achieving such a consensus would mean all nodes on the Bitcoin network adopting the proposed amendments.
Ensuring unanimous acceptance is challenging due to Bitcoin’s inherent design to remain unchanged. Implementing these changes could lead to a hard fork. Which is a protocol change that redefines previously unauthorized actions as permissible. Ideally, all nodes would integrate the changes.
In contrast, a contentious scenario might emerge where only a subset supports the current 21 million BTC threshold. Miners and nodes resisting the modifications would persist with the existing Bitcoin protocol.
This divergence could instigate a competitive rift, resulting in a contentious hard fork and potentially spawning another Bitcoin variant, reminiscent of Bitcoin Cash’s emergence. However, to date it is still unknown what will happen so far out in time.
Whilst the future for Bitcoin is bright, it becomes difficult to forecast exactly what will happen to Bitcoin after all 21 million coins are in circulation.
It is anticipated that by then miners would be well established and fully prepared for the next century. Even if a vision for Bitcoin seems clear today, the actual outcome may prove different.
“Being too far ahead of your time is indistinguishable from being wrong.” – Howard Marks
What happens to Bitcoin after all 21 million are mined?
After all 21 million Bitcoins are mined by 2140, miners will no longer receive block rewards and will rely on transaction fees for compensation.
Why do miners participate in Bitcoin mining?
Miners are motivated by profit from block rewards and transaction fees, supporting decentralization, and viewing mining as a long-term investment strategy.
What’s the incentive for miners when no more rewards are given?
Miners will be incentivized through transaction fees, ensuring the Bitcoin network remains robust. The scarcity and potential value increase of Bitcoin might also motivate continued mining activity.
Will the number of Bitcoins ever surpass 21 million?
No, the built-in protocol ensures the total Bitcoin supply will never exceed 21 million. Miners’ rewards decrease over time and will eventually cease by 2140.