What happens when the last bitcoin is mined?
Bitcoin has undoubtedly been the star of the cryptocurrency world, and has often been compared to Gold, as it cannot be treated arbitrarily. It is mined digitally using the Blockchain technology, and much like Gold, has a fixed quantity that determines its value. So what happens when the last Bitcoin is mined? Will it cease to exist or become even more popular than it is now? Let’s find out!
Why are Bitcoins difficult to mine?
Bitcoin is powered by blockchain tech, an innovation by Bitcoin’s creator/creators – Satoshi Nakamoto. Blockchain allows digital information to be circulated without any unauthorised modification. This seemingly simple technology is bringing about a revolution! According to Don & Alex Tapscott, authors of Blockchain Revolution, the blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions, but virtually everything of value.
Information shared on a blockchain acts as a shared and a constantly updated database. The blockchain database isn’t stored in a single, specific location, but everywhere. The records are accessible to the public and can be verified with ease. It is hosted by millions of computers simultaneously, and its date is available to anyone with an internet connection and the required hardware.
Since Bitcoins are not regulated, controlled, and created by a central government institution, it is not distributed like paper money. Instead, it is ‘mined’ by users who use a special software to solve arithmetic equations and puzzles, and are rewarded with a certain number of Bitcoin in exchange for their work. Anyone with access to the internet and suitable hardware can participate in mining. The mining process involves the compilation of recent transactions into ‘blocks’ and the participant who first solves the puzzle gets to place the next block on the blockchain and claim the rewards. This is a complex but smart way to issue the cryptocurrency, as it also lures in new users to start mining.
The amount of new Bitcoin released with each mined block is known as the ‘block reward’. The block rewards halve every four years, for example, it started at 50 in 2009, and decreased to 25 in 2014. This will continue to fall, until all 21 million Bitcoins are mined, which is estimated to be done by 2140.
Bitcoin mining is purposely designed to be resource-intensive and difficult. The number of blocks found by users each day remain steady. The difficulty of the puzzles that have to be solved to mine a Bitcoin is relative, and depends on how much effort or strain is put into mining across the network. This difficulty is modified by the protocol every two weeks, or 2016 blocks, with the aim of keeping the rate of block discovery constant. If more computers are employed for mining, the difficulty will adjust upwards to make mining harder. If the computational power is reduced, or taken off the network, the difficulty adjusts downward and mining becomes easier.
Why are there limited Bitcoins?
Bitcoin’s ‘hard cap’ or maximum supply has been set to 21 million, and has a monumental role in determining the value of the cryptocurrency, and cannot be changed. This can be broken down into three major parts, which are:
1. Circulating Supply
These are termed as the coins that are in circulation or are actively been held. This only refers to the coins that are available at the moment.
2. Total Supply
These refer to the total number of coins, that may or may not be in circulation at the moment.
3. Maximum Supply
This denotes the hard cap and affirms the maximum number of coins that will be in existence.
Hence, the exact reason why it was fixed at 21 million coins, cannot be reasoned out, but there are certain explanations that suggest why this was done in the first place.Economically, because the currency is infinitely divisible, the precise amount doesn’t matter, as long as there is a ceiling to it and it remains fixed.
It has also been argued that the important aspect is not the number of bitcoins, but in fact the process of mining and the salient features of the cryptocurrency that will keep it relative even after the last Bitcoin is mined, one of which is the transaction fees.
When the last Bitcoin is mined
The last Bitcoin is estimated to be mined by the year 2141, and it is often asked what will happen to bitcoin after there is none left to mine. The possible outcomes are as follows:
Deflation of the crypto
One of the results when the maximum limit of this digital currency is reached is that it will deflate. Currently, a large number of Bitcoins are mined and circulated daily, which leads to their inflation. However, when the maximum number of Bitcoins are mined, this inflation will reverse. This is also partly because of the ‘silent destruction’ of BTCs, that occurs when someone acquires a few Bitcoins but forgets about them or loses the private key, putting them out of circulation. This causes a rise in the value of Bitcoin in the long term.
Transaction fees save the day!
Bitcoin miners, along with Bitcoins, are awarded a ‘transaction fee.’ Hence, when there are no more Bitcoins to be mined, the rewards will be earned in the form of transaction fees per block, which should keep it afloat. Eventually, the transaction fees would be high in value and would keep the miners interested even though they will not receive a block reward. The transaction fees also might increase as people will be willing to pay more to get their transactions confirmed faster. However, this process will also limit and substantially reduce the number of Bitcoin miners in the market.
What will be the value of Bitcoins?
Bitcoin has already witnessed massive hikes in value in its short span of its existence. However, whether it will fall in value, or rise more than ever before is the real question. While there is no way of predicting Bitcoin’s spread in the financial world, it seems that the limited supply of the currency may cause an increase in its price.
The last Bitcoin might even be mined about a century later. A more significant aspect is how will it gain and maintain its legitimacy as a digital store of value. Will the consistent improvements to its security features win the trust of investors and miners?