One question never stops circling, especially by those who are still trying to understand the mathematical creation of Satoshi Nakamoto, the genius mind behind the creation of Bitcoin.hat happens when it runs out? Another person might be asking: what is running out? Our subject here is Bitcoin. But first, how many unmined bitcoins are left? This brings us to the more important question - how is bitcoin designed?
In explaining this, we must first understand that due to a stipulation embedded in the Bitcoin network’s source code, there will only ever be 21 million bitcoins. That seems like quite a lot until you find out that 18.5 million bitcoins have already been mined and are in circulation. So where does that leave us now? Well, 2.5 million is left unmined.
You’re probably wondering now: 2.5 million bitcoins left, isn’t that going to cause a supply crisis within the next few years. Only if that “next few years” means around 120 years would you be somewhat correct as all Bitcoin would have been mined in about 2140.
Remember, we described Bitcoin as a mathematical ingenuity by the pseudonymous Satoshi Nakamoto. Bitcoin’s creator made sure to hardcode the network to follow a consistent pattern of new BTC creation. A rough average of one block every 10 minutes.
Now, the rate of new bitcoins into circulation is halved every four years, so although blocks are introduced regularly, the amount of bitcoin in them falls periodically.
Initially, the reward for mining a block was 50 Bitcoins, then it dropped to 25 Bitcoins in 2012, then dropped again to 12.5 Bitcoins in 2019. Finally, in 2020, the reward for mining Bitcoin will be 6.25.
What next from there?
You’re probably wondering what happens to the network after the last bitcoin is mined about a century from now. What happens to the miners when there is no more bitcoin left to mine? They must then become redundant. Well, not entirely so, as miners play other roles apart from mining for block rewards (the reward they receive for solving complex mathematical problems).
But here’s the primer; Asides from block rewards, Bitcoin miners also receive transaction fees. These are all the fees spent on transactions included in each newly discovered block. Transaction fees aren’t rigid like the block rewards hardcoded into Bitcoin by Satoshi Nakamoto. Instead, Bitcoin miners determine what transaction fees are attractive enough for them to fit a transaction into the next available block.
Currently, transaction fees make up a small proportion of a miner’s revenues since miners currently mint around 900 BTC (~$39.8 million) a day but earn between 60 and 100 BTC ($2.6 million to $4.4 million) in transaction fees each day. That means transaction fees currently make up as little as 6.5% of a miner’s revenue—but in 2140, that’ll shoot up to 100%.
Will transaction fees be enough to keep miners proposing the next block?
This is a pertinent question, especially as transaction fees are paid as fragments of a bitcoin, better referred to as satoshis or sats. Will miners who have invested huge sums to set up their mining farms and run it almost perpetually consuming raw electricity be incentivised enough to continue running their rigs to propose incoming BTC blocks?
So here’s the reality after every Bitcoin halvening; at least for the last three that the Bitcoin network has experienced since creation.
A lot of speculation usually happens during Bitcoin’s halving event. However, historical study for the last three halvings shows that Bitcoin’s price tends to rise after each halving event.
For proper context, the first-ever Bitcoin halving took place in November 2012. This event saw Bitcoin’s price appreciate from about $12 to nearly $1,150 within a year. The next halving took place in July of 2016. And like the previous halving, within a year and a half, Bitcoin’s price moved from $650 to $20,000 by December 2017.
Interestingly, many experts argue that correlation is not causation when it comes to Bitcoin halving and price appreciation. However, since the last halving in May 2020, Bitcoin’s price has appreciated from $8,672 to over $61,000 in March 2021. As far as history is concerned, the Bitcoin price tends to appreciate after the halving event.
As the rewards are halved, this automatically reduces the inflation rate, leading to higher prices. After halving, the price appreciation helps to keep incentivising miners who deploy significant resources in computational power to keep their nodes running.
Why does Bitcoin have value?
So, Bitcoin now functions as a store of value even though most mainstream economists will debate this till death that it doesn’t. If we agree that BTC serves as a store of value, it takes on one of the core attributes of money. But why does it have value?
First, any currency is usable if it is a store of value, or, put differently, if it can reliably be counted on to maintain its relative value over time and without depreciating. In many societies throughout history, commodities or precious metals were used as payment methods because they were seen as having a relatively stable value. Unfortunately, fiat currency, which is the legal tender put forth by every nation, has been dwindling in value over the years. Argentine Peso, the Zimbabwean dollar, Turkish Lira, and even the US Dollar have all been victims of inflation, most of which are as a result of poor economic policies and financial misconduct by governments.
Beyond the fiat economy, Bitcoin has been consistent in not only maintaining positive value for its holders, but it is also undoubtedly the best performing asset class of the last decade. It is looking like the trend will continue even in this new decade. Why? Did you know that three of the largest central bankers - the Federal Reserves, Peoples Bank of China and the European Central Bank printed a combined sum of $5 trillion in 2021 alone? Interestingly, a significant portion of this current money supply was printed out of thin air.
Consequently, the macroeconomic impacts are glaring to investors who are looking to dodge the impending inflation. Therefore, Bitcoin presents itself as a safe haven, so most expect that Bitcoin, which has a finite and definite supply, will appreciate in price in the next few years.