Did you know that bitcoin has a supply limit of 21 million coins?
There is a lot of speculation about the reasons for bitcoin creator Satoshi Nakamoto for limiting the supply of bitcoin. However, most people believe that this was his approach to create a hard electronic currency without inflation.
However, whatever the reason, other pressing questions arise, such as when will all bitcoins be mined? Furthermore, what will happen to bitcoin miners after this happens?
Why is the supply of bitcoin limited?
Bitcoin is similar to gold in at least two ways. There is a condition in its source code that it must have a limited supply, meaning that both bitcoin and gold are finite resources. For this reason, only 21 million bitcoins can ever be in circulation.
Also, like gold, bitcoin cannot be created out of the blue. It takes some effort to extract it. The difference, of course, is that bitcoin is mined through computational means rather than physically dug out of the earth.
Bitcoin mining requires incredibly powerful hardware designed specifically for one use. ASIC miners solve the above equations to find the linking target hash, and when they do, the miner receives a bitcoin block reward – but more on these and their importance to the bitcoin network in a moment.
All 21 million bitcoins have already been issued
Miners don’t “create” any new bitcoins, even though it may appear that they do. In reality, Satoshi Nakamoto issued all 21 million bitcoins when he launched bitcoin in January 2009.
The real role of miners is to secure the network and process bitcoin transactions. Every 10 minutes, a successful miner discovers a new block by solving a cryptographic puzzle and is allowed to add it to the bitcoin blockchain.
Blocks serve as a ledger and are filled with bitcoin transactions waiting to be processed. For this service, miners are automatically paid in the form of new bitcoins and transaction fees.
When will all bitcoins be mined?
In announcing the release of Bitcoin V.0.1, Satoshi Nakamoto unilaterally offered anyone willing to fulfill his agreement to distribute them. As long as miners follow bitcoin’s rules to help secure the network and process bitcoin transactions, they will be rewarded in bitcoin and transaction fees.
The bitcoin white paper set the rate at which miners would be awarded bitcoins for their work, stating that said rate would be halved every four years until all bitcoins were mined. It concluded that once the supply of bitcoin is exhausted, the reward system could be replaced with transaction fees.
When bitcoin was launched, miners received a reward of 50 bitcoins for every newly discovered block. It was halved in 2012 to 25 bitcoins and again in 2016 to 12.5 bitcoins.
By 2021, miners receive 6.25 bitcoins for each new block. However, in 2024, the bitcoin mining reward will drop to 3.125 bitcoin per mined block. At this rate—with the bitcoin block reward decreasing after every 210,000 blocks—the last bitcoin won’t be mined until around 2140.
However, the quirks of the bitcoin network and the way it rounds numbers mean that, oddly enough, bitcoin will likely never reach the nice round number of exactly 21 million. When bitcoin gets closer to 21 million, it will likely be a few decimal points short of the exact number.
What will happen to the miners once all 21 bitcoins have been mined?
Bitcoin’s limited supply of 21 million, coupled with the network’s reliance on miners to function, worries most bitcoin users and enthusiasts. This is mainly because the main incentive for miners to act as validating nodes is the bitcoin reward.
Satoshi had already provided a solution to the problem in the announcement release of bitcoin. As mentioned, once the supply of bitcoin is exhausted, the reward system will only use transaction fees. Currently, bitcoin miners receive transaction fees on top of any bitcoin block mining reward, which contributes to bitcoin’s popularity. It also helps keep the bitcoin network secure.
However, when all 21 million bitcoins have been mined, bitcoin miners may decide to raise transaction fees higher to make up for some of the lost earnings at the end of the block reward. That said, he doesn’t fully acknowledge that by that time, the bitcoin block reward will be minute. If bitcoin continues at its current halving rate, the halving in 2032 would drop this figure to 0.78125, and further to 0.390625 in 2036.
Therefore, unless the price of bitcoin increases (which would happen due to the increasing scarcity of newly minted bitcoin), the monetary value of the bitcoin block reward will decrease significantly.