What Will Happen Once All The Bitcoin Are Mined?
At some point, around the year 2140, a miner somewhere in the world will mine the 21 millionth Bitcoin.
Unless the protocol is changed, that’s it — there will never be any more released because the supply is fixed.
Right now, around 85% of the total supply has been mined, meaning 1800 Bitcoin are generated each day.
2140 is still a long way off. But it’s never too early to ask: what will happen once we reach 21 million Bitcoin?
Why 21 Million?
Although Bitcoin is digital and doesn’t exist in a physical form, the term ‘mining’ is very appropriate for the process through which it’s released.
Satoshi Nakamoto, the pseudonymous person or group behind the first decentralised cryptocurrency, launched the network in 2009. They explained from the start that Bitcoin would be gradually released and could be earned by mining nodes. Nodes are computers that process transactions and record them on the public blockchain.
Miners use a lot of electricity and expensive equipment, so they need compensation — which is the newly released Bitcoin.
Every 210,000 blocks (roughly four years) the number of Bitcoin (BTC) released for each mined block halves. At first, it was 50 BTC per block, now we’re down to 12.5. This is to keep pace with the ever-dropping cost of mining equipment and the rising price of Bitcoin. Around 2020, the reward will halve again to 6.25 BTC.
No one is sure quite why Satoshi Nakamoto chose those particular numbers. However, the decreasing reward schedule mirrors the rate we mine precious metals like gold. There’s a fixed amount available in the world, and it gets harder and harder to find more with each passing day as the price also increases.
So, what will happen once we reach the 21 million mark?
It’s easy to forget that once we’ve mined all the available Bitcoin, that’s not the end — it’s just the end of the beginning.
Distributing all the available Bitcoin is only the start and the network is still at an early stage.
Assuming demand continues to grow and the protocol isn’t changed to allow the creation of more, Bitcoin will be a deflationary currency.
Fixed supply currencies are inherently deflationary for two reasons:
- The spendable supply tends to decrease over time
- The demand for each unit of currency tends to increase over time.
The spendable supply is different to the total available supply — it’s the amount of Bitcoin which can be used, whether that’s spending it, sending it to other wallets, or selling it.
The spendable supply is continuously decreasing in 3 ways:
- Mistakes and accidents (such as sending Bitcoin to the wrong wallet, losing or forgetting a private key, throwing away a computer containing a hardware wallet)
- Intentional destruction (e.g. purposefully sending Bitcoin to an address with no private key or otherwise making it impossible to access)
- Technical problems (e.g. the first block of 50 BTC can’t because it’s not recorded in the blockchain)
Most of the old technical issues have now been resolved and there’s not much of an incentive to intentionally destroy small amounts of Bitcoin now that the price is so high — it’s theoretically possible, but unlikely and expensive. Using a platform like Luno reduces the chance of accidental loss, but it still does sometimes happen.
As the spendable supply decreases and demand continues to increase, Bitcoin will experience deflation and the value of each unit will rise.
What is deflation?
Deflation is when the inflation rate falls below zero and the purchasing power of a currency decreases over time.
This is rare among government issued (local) currencies because their supply is usually growing. But it’s more likely among currencies that aren’t issued by local governments, such as when people use US dollars in a country where that’s not the official currency.
Deflation is good for investments
When you make an investment, whether that’s an index fund, a piece of art, or real estate, you want its value to increase over time.
Deflation is detrimental for a medium of exchange, but it’s ideal for long-term stores of value. Knowing an asset will earn you passive income creates a strong incentive to buy and hold it.
As Bitcoin has so far proved deflationary, it’s become a popular store of value
‘Hodling’ is the practice of buying and holding cryptocurrency long-term. This has the added benefit of stabilising prices and reducing volatility.
Bitcoin’s deflation has fuelled the whole surrounding eco-system, enabling the industry around it to grow. This creates network effects — the more people adopt Bitcoin, the more the existing users benefit, which gives them a strong incentive to encourage others to join.
The fact that we know how many Bitcoin are in existence and how many can ever exist is also an important factor that distinguishes it from local currencies.
It’s near impossible to say how many dollars or euros or rand or any other local currencies are in existence. The current estimate for ‘broad money’ (any assets usable for payments or stores of value) is over 80 trillion USD, of which nearly 37 trillion USD are ‘narrow money’ (currency available as a liquid medium of exchange.)
However, that’s just one definition of money. Counting others forms like mined gold and investment funds puts the total figure in the quadrillions, with an estimated 73 trillion USD in the stock market, between 544 trillion and 1.2 quadrillions USD invested in derivatives, and an astonishing 215 trillion USD in debt.
We also don’t know how the supply will change in the future, or how much more money governments will print. As hyperinflation proves, the supply of local currencies is essentially open-ended.
By contrast, the supply of Bitcoin is transparent and well known. Future deflation is expected and widely understood. So although we don’t yet know what the exact effects of this will be, the fact that we know it will happen allows it to be priced into the market. In the meantime, the ongoing deflation is what allows the industry to develop.
What will happen to the miners when Bitcoin reaches 21 million?
Once we hit the 21 million mark miners will no longer be rewarded with new Bitcoin. But they’ll still receive transactions fees (the small fee you pay for sending Bitcoin.)
The equipment they use is constantly decreasing in cost, so mining could become far cheaper over the next twenty years.
So while some miners may decide to move onto other endeavours, there’s enough vested interest in the success of the market (which will only grow by 2140) to ensure we’ll overcome this problem.
Looking to the future
At Luno, we always aim to take a long-term view of the cryptocurrency industry — which is why we believe it’s important to consider what the future might hold and to acknowledge that things are set to change more than we can even imagine right now.
The year 2140 (when we expect to reach 21 million BTC) might seem like it’s a long way off.
It’s also easy to feel like Bitcoin will be at its current price range forever but we anticipate things will be very different once the total supply is decreasing, not increasing.
What are your predictions?
