The total supply of Bitcoin is limited to 21 million. Due to the use of rounding operators in the Bitcoin codebase, the number of Bitcoins issued will almost certainly never reach 21 million and nearly 25% of the Bitcoin already mined has been lost forever due to lost wallet addresses mostly from early investors meaning the actual, total supply is closer to 17 million. When the Bitcoin supply reaches its maximum, no new Bitcoins will be created with transaction fees likely to be the only source of income for Bitcoin miners.
Of the total 21 million Bitcoins that will ever be available, 90% have been mined within 12 years of the cryptocurrency’s creation. Satoshi Nakamoto, the person (or persons) responsible for creating Bitcoin kept the supply fixed in order to keep Bitcoin scarce and valuable. However, with only a limited number of coins available for mining, there are concerns about what will happen to the Bitcoin economy when the supply runs out.
The Bitcoin Supply Function
Satoshi set a maximum limit of 21 million Bitcoins on the market, regulating it through an algorithm in the source code. It is a scarce commodity due to its limited supply, which may help to increase its price in the future. No more than 21 million Bitcoin can ever be mined. Ever.
At a fixed rate of one block every 10 minutes, a new Bitcoin is added to the supply. However, the algorithm is designed in such a way that the number of new Bitcoins in each block is reduced by half (halving) every four years.
Around 19 million Bitcoins have been mined, leaving only 2 million available for future mining. According to experts, the remaining Bitcoins will be mined by 2140.
What do the miners do once all the Bitcoin has been mined?
Miners play an important role in the creation of Bitcoin tokens by solving cryptographic puzzles in order to verify and validate a block of transactions in the network. Miners receive block rewards for their contributions to the network, which include newly minted Bitcoin and the total transaction fees paid in a block.
The only problem for miners is that the block reward is also halved every four years. It was cut in half to 25 Bitcoins in 2012, and it was reduced to 12.5 Bitcoins in 2016. Miners stood to earn 6.25 Bitcoin for each new block in May 2020.
The mining process entails solving complex mathematical puzzles, which necessitates the use of high-end computational hardware (such as GPUs and CPUs), which consumes a lot of energy.
Is mining sustainable?
Miners profit by using the money they earn from the block reward to offset the operational costs of mining.
Yet, because the rewards are halved every four years, the cost of running the operation will eventually exceed the miners’ rewards. Mining may become an unsustainable business model for them as a result of this. However, because only a limited number of transactions can be confirmed every 10 minutes, transaction fees will gradually rise.
While this can compensate miners for a lack of block rewards, the transaction amount is dependent on the network’s future state. Miners could also use innovation to increase energy efficiency and lower costs in the mining industry.
What is the impact on the network?
The network is the most important aspect of Bitcoin. Any cryptocurrency’s heart is the distributed ledger model. If the number of transactions on the network increases in the future, the speed of the transactions may slow down. Bitcoin’s architecture prioritizes accuracy and integrity over speed.
If the number of transactions in the network decreases, Bitcoin has the potential to become a reserve asset. Small retail traders will be pushed out, and large institutional players will take their place, potentially raising transaction fees and making trading more expensive.
Scarcity will almost certainly lead to an increase in Bitcoin purchases. As FOMO (fear of missing out) sets in, there may be a rush to buy the rare asset, and those who already own it will be in a great position to sell. However, there is also hope that potential regulations will help keep volatility in check.
If you enjoyed this article, you might also like: Could the Price of Bitcoin Ever go Down to Zero?
I write about blockchain, crypto, NFTs and other disruptive technologies and innovations.