What happens when 21 million bitcoins were exhausted?

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Many newbies always ask such a question at the very beginning, “what should we do if the bitcoins were exhausted one day?” So, let’s have a discussion on this issue today.

 

Bitcoin is hard to be exhausted in our life time

As we all know that the total amount of bitcoin is 21 million. Once a block has been successfully mined, the coin will be issued to the mining worker as the reward. Due to the mechanism of being halved every four years in bitcoin block rewards, all the bitcoins will not be exhausted until the year 2140. Therefore, there is no need to worry about the exhaustion of bitcoins in our life time.

 

So long as there’re profits, the mining activity will never stop

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But let’s suppose one day when the reward mechanism of bitcoin blocks cannot provide attractive bitcoin as the reward, will the mining workers stop mining activity? In fact, the mining cost is not fixed and it is also not scientific to calculate the rewards separately. Although the difficulty of cryptocurrency mining keeps increasing, the length of the adjustment cycle will be affected by the growth rate of the hashrate. If there are many mining workers, the cost will be naturally high, and vice versa. Secondly, the cost of electricity in different regions is also different. In some places, the electricity can be as low as being free, so the cost of power consumption can be neglected. Therefore, we only need to understand one principle: the mining activity will never stop as long as there are still profits.

In fact, in terms of the development of bitcoin, the factors really affecting the enthusiasm of mining workers are the profits instead of the exhaustion of the mining resources. If the bitcoin transaction volume increases with higher fees; or if the bitcoin price rises with considerable mining revenues, the mining workers will be accordingly more enthusiastic. Then, so long as the value of bitcoin still exists, there will always be profits for mining activities and the workers will never shut down their miners.

At present, many mining workers are getting used to calculating the mining revenues based on the current prices. Some pools therefore adopt the greedy means to focus all the hashrate on the “most profitable coins”, the highest exchange rate to US dollars. However, it turns out that such a greedy means is no better than the traditional way of always focusing on mining a specific coin. Why? Because the mining activity is not a one-off game and the coins can be saved, that is, each mining worker has his own judgment on the prospects of cryptocurrency. Even if the bitcoin price falls to only $1 now, as long as they believe in the price rebound, they will never care about the current losses and continue the mining activities. When the price rebounds in the future, the cost of current investments will be worthwhile.

 

Mining revenues = block reward + transaction fees

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In addition, the reason why many people worry about “the exhaustion of the 21 million bitcoins” is that they mistakenly believe that the income of mining workers only comes from the “block reward”. But in fact, the mining revenues consist of two parts, one is the block rewards which will be halved every four years since the initial transaction package; the other comes from the transaction fees.

To make their transactions confirmed by the mining workers as soon as possible, the traders usually pay them some fees additionally. The higher fees are provided, the transaction will be more likely packaged. On the one hand, the existence of the transaction fees can raise the threshold of account transfer and prevent garbage transactions; on the other hand, it can also encourage the mining workers to compete for accounting so that they will continue to provide hashrate guarantees for the security of bitcoin network after all the coins have been mined. In Satoshi Nakamoto’s white paper on the incentive mechanism of bitcoin, his descriptions can be read as follows, “Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.” That’s to say, even if all the bitcoins have been issued, so long as there are enough trading demands, the mining workers will have reasons to continue their mining activities to get profits.

 

In summary

  • Bitcoin is hard to be exhausted in our life time.
  • So long as there’re profits, the mining activity will never stop.
  • Mining revenue includes not only the rewards, but also the transaction fees. Even if all the bitcoins have been issued, so long as there are enough trading demands, the mining workers will have reasons to continue their mining activities to get profits.

 

Appendix

A series of articles on cryptocurrency mining for beginners on EastShore:

 

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