Bitcoin is like digital gold in many ways. Like gold, bitcoin cannot simply be created arbitrarily; it requires work to "extract". While gold must be extracted from the physical earth, bitcoin must be "mined" via computational means.
Bitcoin also has a stipulation—set forth in its source code—that it must have a limited and finite supply. For this reason, there will only ever be 21 million bitcoins ever produced. On average, these bitcoins are introduced to the bitcoin supply at a fixed rate of one block every ten minutes. In addition, the amount of bitcoin released in each of these aforementioned blocks is reduced by 50% every four years.
- There are only 21 million bitcoins that can be mined in total.
- Once bitcoin miners have unlocked all the bitcoins, the planet's supply will essentially be tapped out.
- Currently, around 18.5 million bitcoin have been mined; this leaves less than three million that have yet to be introduced into circulation.
- However, it's possible that bitcoin's protocol will be changed to allow for a larger supply.
The Supply of Bitcoin Is Limited to 21 Million
In fact, there are only 21 million bitcoins that can be mined in total. Once miners have unlocked this amount of bitcoins, the supply will be exhausted. However, it's possible that bitcoin's protocol will be changed to allow for a larger supply. What will happen when the global supply of bitcoin reaches its limit? This is the subject of much debate among fans of cryptocurrency.
Currently, around 18.5 million bitcoin have been mined. This leaves less than three million that have yet to be introduced into circulation.
While there can only ever be a maximum of 21 million bitcoin, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available bitcoin in circulation could actually be millions less.
Bitcoin Mining Rewards
The first 18.5 million bitcoin have been mined in the ten years since the initial launch of the bitcoin network. With only three million more coins to go, it might appear like we are in the final stages of bitcoin mining. This is true but in a limited sense. While it is true that the large majority of bitcoin has already been mined, the timeline is more complicated than that.
The bitcoin mining process rewards miners with a chunk of bitcoin upon successful verification of a block. This process adapts over time. When bitcoin first launched, the reward was 50 bitcoin. In 2012, it halved to 25 bitcoin. In 2016, it halved again to 12.5 bitcoin. On May 11 2020, the reward halved again to 6.25 bitcoin.
The reward will continue to halve every four years until the final bitcoin has been mined. In actuality, the final bitcoin is unlikely to be mined until around the year 2140. However, it's possible the bitcoin network protocol will be changed between now and then.
The bitcoin mining process provides bitcoin rewards to miners, but the reward size is decreased periodically to control the circulation of new tokens.
Impacts of Finite Bitcoin Supply on Bitcoin Miners
It may seem that the group of individuals most directly affected by the limit of the bitcoin supply will be the bitcoin miners themselves. Some detractors of the protocol claim that miners will be forced away from the block rewards they receive for their work once the bitcoin supply has reached 21 million in circulation.
Without the incentive provided by a prize of bitcoin at the end of a rigorous and costly mining process, miners may not be driven to continue to support the network. This would have disastrous effects for bitcoin.
Mining is not just a process by which new tokens are introduced into the ecosystem; it is first and foremost the way in which the decentralized blockchain is supported and maintained (in the absence of a central bank or other single authority). If miners abandon their work, the network may be forced to move toward centralization or collapse entirely.
Even when the last bitcoin has been produced, miners will likely continue to actively and competitively participate and validate new transactions. The reason is that every bitcoin transaction has a small transaction fee attached to it.
These fees, while today representing a few hundred dollars per block, could potentially rise to many thousands of dollars per block, especially as the number of transactions on the blockchain grows and as the price of a bitcoin rises. Ultimately, it will function like a closed economy, where transaction fees are assessed much like taxes.
It's worth noting that it is projected to take more than 100 years before the bitcoin network mines its very last token. In actuality, as the year 2140 approaches, miners will likely spend years receiving rewards that are actually just tiny portions of the final bitcoin to be mined. The dramatic decrease in reward size may mean that the mining process will shift entirely well before the 2140 deadline.
It's also important to keep in mind that the bitcoin network itself is likely to change significantly between now and then. Considering how much has happened to bitcoin in just a decade, hard forks, new protocols, new methods of recording and processing transactions, and any number of other factors, may impact the mining process. It's also true that, at some point before 2140, bitcoin may very well fall entirely out of favor. This could essentially render the entire process obsolete, as well as the question about what will happen when all bitcoin are mined.