Bitcoin's security and functionality depend on miners. Miners rely on block rewards to be profitable and competitive. What happens when I lose everything?
Imagine a world with a limited money supply and no dollars to print. Sounds weird, right? But in the world of Bitcoin, this scenario is not only possible, but inevitable.
Designed with a limit of 21 million coins, the Bitcoin network has just reached a major milestone: the halving reduced its inflation rate by 50% for the fourth time since its inception. To date, 19,688,016 Bitcoins have been mined, with less than 2 million remaining to be discovered in the next 120 years. This scarcity, combined with the growing demand for Bitcoin, is set to reshape the future of cryptocurrency.
The roadmap to the final mining of Bitcoin is a gradual process. By 2026, 95.24% of Bitcoin will be mined, and by 2039, this number will reach 99.52%. The mining of the second-to-last Bitcoin is expected to take place around 2093.
Fast forward to 2140, the year when the last Bitcoin (or, indeed, the last Satoshi — Bitcoin’s smallest denomination) is expected to be mined. By this time, Bitcoin’s inflation rate will have flattened out.
The impact of this milestone is particularly important for Bitcoin miners. Once all Bitcoins are mined, miners will no longer receive new Bitcoins as block rewards. Instead, they will rely solely on transaction fees as a source of income. As block rewards decrease over time, transaction fees are expected to become the main source of income for miners, which may lead to higher fees (in US dollars).
Just for reference, back in 2011, users paid 0.01 BTC per transaction, many of which were confirmed for free. This amount was then reduced to 0.0005 BTC in version 0.3.23 and has continued to decline as the reality of Bitcoin has evolved and its price has begun to rise.
According to data, the average fee per transaction is currently 0.00022 BTC (104.6 sats/vB). In US dollars, this means that the price today is up to $15. In 2017, the average fee was about $1, and in 2012 the fee was about $0.01.
The cost of mining a Bitcoin block today varies widely, depending on factors such as energy costs, mining hardware efficiency, and the network hash rate.
Data site estimated that as early as 2022, each US miner spent more than $20,000 per mined block; UK miners spent nearly $50,000, while the lucrative Kazakhstan mining farms paid more than $8,000 per block. These costs are expected to rise further after the recent halving event, which halved the block reward from 6.25 BTC to 3.125 BTC.
However, miners can withstand a 50% drop in BTC rewards because rising prices make mining more profitable in fiat terms: the USD price of Bitcoin rose 943% between January 2020 and April 2024.
Despite these challenges, the Bitcoin network is designed to maintain its security through a difficulty adjustment algorithm that ensures that the block generation rate remains consistent even as miner participation fluctuates due to changes in economic incentives or mining conditions.
As the supply of new Bitcoin decreases, the cryptocurrency is expected to become increasingly scarce and even deflationary due to external factors such as lost wallet addresses and token burns (i.e. tokens sent to addresses that cannot be recovered). This means that not all Bitcoins in circulation are available for use. Estimates from cryptocurrency forensics firms suggest that up to 20% of issued Bitcoins may be permanently lost due to factors such as lost private keys or Bitcoin holders passing away without revealing their wallet details.
Image: Chainalysis
This shift could impact the value of Bitcoin and its role as a digital store of wealth, as Bitcoin’s appeal as peer-to-peer electronic cash and its expected utility give way to the “decentralized store of value” argument every time its price rises.
While the supply of Bitcoin will remain relatively stable, increasing by a maximum of about 12% over the next century, demand for Bitcoin will likely continue to grow. Basic economic principles suggest that a fixed supply coupled with growing demand will likely drive up prices as more people seek to acquire a share of the total Bitcoin supply.
Expanding solutions and the future
As mentioned earlier, it is expected that users will pay fewer satoshis per transaction in the future. However, Bitcoin may still not be ideal for small payments - after all, it will not be any good for transactions that are equal to or lower than the processing fees required. This is at the heart of the scalability debate and has been a contentious issue among developers, even leading to the worst chain split in the history of the Bitcoin network and the emergence of Bitcoin Cash.
Bitcoin Cash supporters argue that Bitcoin should have larger blocks — essentially larger megabyte-sized records of data containing transaction details stored on the network. Larger blocks would allow miners to earn more money from each mined block, reducing the pressure on users. The larger the blocks, the more transactions can fit, which means more fees need to be collected.
However, Bitcoin developers believe that Layer 2 solutions and sidechains can solve this problem without changing the core BTC configuration. The Lightning Network, in particular, is considered a potential solution to facilitate everyday Bitcoin transactions while reserving the main blockchain for high-value or batch transactions.
Everything that happens in the Lightning Network stays in the Lightning Network, and transactions are only confirmed on-chain when users cash out their Lightning Network Satoshis. This is similar to a bank vs. street cash system. The bank keeps a record of every digital transaction (BTC chain). A person can cash out a dollar to receive a physical dollar, and all currency exchanges with that dollar on the street (Lightning Network) are instant and not registered by the bank until someone decides to deposit that dollar into their account, which is then recorded by the bank that stores the bill.
This could allow miners to charge higher fees for processing these larger transactions, leaving little room for off-chain development while maintaining the relevance of traditional small blocks.
However, a lot can happen in Bitcoin’s century-long history. New forks that change the chain configuration, mass adoption of second-layer solutions, new developments that improve network efficiency, sidechains, a “better Bitcoin” — we don’t know.
What we do know, however, is that as long as there’s been an internet, Bitcoin will function as Satoshi intended: as a robust, decentralized network — with lots of weird people hyping it up on Twitter.