What Happens to Miners When All Bitcoin Has Been Mined?

Bitcoin's Block Reward

Block rewards are new bitcoins that are ‘minted’ or enter circulation every time a new block of transactions is verified by ‘miners’. A ‘block’ is like a sheet of Bitcoin transactions. Miners are network participants who verify the legitimacy of the transactions before adding these pages (blocks) as permanent records on the blockchain.

But they also do much more than that. By producing and verifying blocks, they keep the Bitcoin network running securely. In doing this, they also keep it honest and free of manipulation so that millions of users worldwide can trust it.

If miners play such a huge role in Bitcoin’s ecosystem, surely there has to be some sort of incentive, right? After all, they don’t expend their time and resources because they happen to like it. That’s why Satoshi designed Bitcoin’s network to release new bitcoins after every block confirmation.

Block Reward Halving

But there’s a catch: the block reward is cut in half every four years – in a process known as halving – or ‘halvening’ by those who prefer an apocalyptic flair. This event takes place every four years, and causes the amount of bitcoins entering into circulation to be reduced by 50%.

When Bitcoin was new, successfully mining a block got you (or your mining pool) 50 BTC. In 2012, that dropped to 25 and 12.5 again in 2016. In 2020, it became 6.25. That will go on and on 64 times until it tapers to nothing. That will be around the year 2140.

The Huge Conundrum

This is where we’ve got a conundrum (or so it seems). When there are no more bitcoins being released, how will miners get paid? What will happen to Bitcoin, and its security?

The block reward is a crucial component of Bitcoin’s very existence. It’s an economic incentive for miners to uphold its integrity and security. As the block rewards diminish, it is a potential threat to the stability of the system.

As it turns out, Satoshi totally envisioned this. “In a few decades, when the reward gets too small, the transaction fee will become the main compensation.” This means besides the reward, Bitcoin’s protocol is programmed to have transaction fees as remuneration for miners.

Block Reward vs. Transaction Fees

Even then, some people worry that transaction fees alone may not suffice. But when you look at Satoshi’s approach to keeping Bitcoin deflationary, you’ll see that’s not the case.

Satoshi’s unorthodox approach of cutting in half the amount of bitcoins being released is a complete game-changer. Remember Bitcoin is not influenced by any untoward machinations in the background. It only responds to the forces of supply and demand. The thing is, Bitcoin’s supply is guaranteed to reduce.

One of the laws of supply and demand dictates that if supply decreases with demand remaining constant, the price will go up.

Bitcoin already got the supply part down. And, its demand (and hence price) has shot up like crazy, especially in recent months. Both retail and institutional investors are looking to Bitcoin as a cushion against (inevitable) FIAT inflation that is getting worse as governments print more money to respond to the economic devastation of Covid-19.

Even if it were not for the pandemic, Bitcoin’s allure as a profitable asset would continue to pull in new investors chasing after the ever-dwindling Bitcoin’s supply. At the time of writing, over 18.5 million of Bitcoin has already been mined. That leaves less than 2.5 million of Bitcoin yet to be released into circulation.

What do you think the long-term effect of this is? Add to the fact that some of the biggest Bitcoin whales are not selling their Bitcoin at any point in the near future. Witness MicroStrategy, whose CEO Michael Saylor revealed the company plans to hold onto its significant Bitcoin trove – which it continues to aggressively expand, for at least a 100 years. It wouldn’t be too far-fetched to imagine many other institutions are not exactly looking to offload their Bitcoin stash any time soon.

Only Way Is Up

The dynamic created by Bitcoin’s shrinking supply and increasing demand will lead to a bigger ‘network effect’ for Bitcoin. This means a higher price and value of the coin.

“As the number of users grow, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value,” foresaw Satoshi. As discussed above, we already see this in play.

So, will transaction fees alone cut it? There’s no definite, clear-cut answer. What is for certain is that as more users flock to the Bitcoin network, the transaction fees will go up. In the end, the transaction fee could be as valuable as the block rewards. Miners will still be able to sustain their operations, ‘watch over’ Bitcoin, and get a payday.

Final Thoughts

Bitcoin has in place a beautifully designed deflationary policy that’s a stark contrast to government money. The way by which it achieves that is the same one that some worry could unravel everything.

But once again, we see how Satoshi deftly planned for that eventuality. Even when block rewards slowly fizzle out, miners will still be incentivized with transaction fees. The year 2140 is a long way off, so it will be interesting to see how things play out.