Key Takeaways
By 2140, all 21 million Bitcoin will have been mined, improving the network’s scarcity and value.
Miner rewards decrease every 210,000 blocks mined in an event called the Bitcoin halving, and by 2140, miners will rely solely on transaction fees.
Miners’ motivation to secure the network is done to seek profit, support decentralization, and view mining as a long-term investment.
Transaction fees, which currently account for about 5% of the miner’s revenue, may balance out the declining block rewards in the future, especially with offchain solutions like the Lightning Network.
Bitcoin mining has increasingly become attractive due to lucrative incentives for miners to maximize their Bitcoin yield. When it first launched, miners received a reward of 50 Bitcoin for every block. Early Bitcoiners could mine 100 BTC in one day.
However, miners now receive 3.125 BTC after the fourth halving for validating a block. This reward has been halved four times since Bitcoin’s inception. Currently, over 19.8 million Bitcoins are in circulation, with only 1.5 million left to be mined before reaching the 21 million cap, expected by the year 2140.
Bitcoins’ finite supply is a defining part of Satoshi Nakamoto’s decentralized protocol. To engineer cryptocurrency with a predetermined limit, Bitcoin boasts scarcity, which increases Bitcoin’s demand and value over time.
After all 21 million Bitcoin are mined, miners’ incentives will shift solely to transaction fees for verifying and securing blockchain transactions. Post-2140, there will be zero block rewards, but the network will continue to operate and remain secure because of these transaction fees.
Why Do Miners Participate In Bitcoin Mining?
Miners commit to the mining process for a variety of reasons, both financial and ideological. Here are the primary motivations:
Financial Incentive
The primary motivation for miners is the profit potential. Miners can earn block rewards and transaction fees every ten minutes by successfully mining a block. In the early days of Bitcoin, this presented an opportunity for economic gain that was of major interest to miners.
Supporting Decentralization
Cryptocurrencies offer a decentralized alternative to traditional centralized financial systems. Solo individuals contribute to this decentralization by participating in mining, ensuring the network resists censorship and external control.
Long-term Investment Strategy
Some miners view mining and accumulating Bitcoin as a long-term investment strategy, hoping that the coins they mine now will be appreciated. The chart below illustrates the hash rate currently securing the network.
A high hashrate on the Bitcoin network indicates that Bitcoin is benefiting from increased miner participation and investment. As more capital and energy flow into mining operations, the network becomes more resilient and efficient, helping miners endure market volatility.
This rising hashrate signals Bitcoin’s faster organization and strengthens investor confidence in its security, with digital negative entropy serving as the key driver of this ongoing trust.
While there have always been occasional dips in hashrate due to various reasons, said dips often represent temporary shifts. For instance, when China banned Bitcoin mining in 2021, miners reorganized themselves by relocating operations, showcasing miners’ ability to adapt. In quarter four of 2024, Bitcoin is at its highest; such moments emphasize the nature of the network and its ability to overcome challenges.
A high hashrate on the Bitcoin network signifies its strength and robustness, instilling trust among investors about the network’s security.
While there might be occasional dips in the hashrate for various reasons, they often represent temporary shifts. For instance, when China implemented a ban on Bitcoin mining in 2021, miners adapted by relocating their operations, showcasing the resilience and adaptability of the Bitcoin community. Such moments emphasize the dynamic nature of the network and its ability to overcome challenges.
Understanding Bitcoin’s Supply Incentive And Miner Revenue
During bull markets as illustrated in the hashrate chart, the rise in fees becomes a greater source of income for miners. This fee increase aligns with increased demand for Bitcoin as new users conduct more transactions on the network. In bearish markets, fees typically comprise a smaller portion of miner earnings. Over time as layer 2 off-chain solutions like the Lightning Network begin to offer swift, cost-effective Bitcoin transfers, the layer one blockchain will not be used as often.
Some argue that the escalating transaction fees, which presently account for 5% of miners’ revenue (illustrated above), will balance out the declining block rewards in the future.
Can Bitcoin’s Hardcap Of 21 Million Be Changed?
Bitcoin’s hard cap of 21 million isn’t explicitly stated in a single code line. Initially, miners earned 50 BTC per block, but this reward is halved every 210,000 blocks. Following this halving cycle means that by around 2140, all Bitcoins will be mined, and the block reward will become zero.
When adding up the rewards from each halving, the total approaches Bitcoin’s 21 million BTC cap. The built-in halving mechanism ensures that no more Bitcoin will be minted once this limit is reached.
According to GalaxyResearch, by 2140, miners will rely entirely on transaction fees for compensation, as no more block rewards will be issued. A hard cap on supply guarantees that Bitcoin’s supply will never exceed 21 million.
No block rewards are a design that guarantees that there will always be at most 21 million Bitcoins in circulation
What Happens When Bitcoin Mining Rewards Will Be Vanished?
While the reward quantity has decreased over time, Bitcoin’s high value compensates for the halving reductions. Additionally, as Bitcoin became mainstream, its transaction fees increased.
Bitcoin, known as digital gold, possesses the intrinsic quality of scarcity with its fixed supply cap of 21 million coins. This design evokes an economic elegance, as the cap emulates the limited availability of precious resources.
Having said the above, what unfolds when the last Bitcoin has been mined, and miners can no longer receive block rewards? Why will miners continue to secure the network? Here are some key reasons miners will continue to mine:
Transaction Fees
As miners divert away from block rewards, the stakeholders who are deemed the lifeblood of the Bitcoin network, the miners, will be incentivized primarily via transaction fees.
This will ensure the network stays robust and transactions are continuously processed. The transaction fee is expected to be high enough in SATs converted to the US dollar to be fair, justified, and a profitable source of income for miners post-2140.
Economic Renaissance
Bitcoin’s finite nature might further solidify its role as a store of value. With no more inflow of new coins, scarcity could induce an appreciation in value, making it even more sought-after as a hedge against traditional fiat systems.
Mining Resilience
Even after block rewards end, the assumption is that transaction volumes will have increased by then. This higher transaction activity generates more fees, making fee-based mining profitable and sustainable for miners even without block rewards. This ensures miners remain incentivized to secure the network once the reward drops to zero.
Innovation and Evolution
By block rewards end in 2140, miners may turn to innovative solutions, such as capturing and repurposing the heat generated from mining operations. This heat could be harnessed for practical use in industries like agriculture or heating homes, transforming what was once a byproduct into an additional revenue stream.
Similar to how real-world gold miners process and sell byproducts like copper or silver, Bitcoin miners may see energy recycling as a secondary source of income.
The Debate On Altering Bitcoin’s Supply Cap
Bitcoin’s supply cap can be modified by changing its foundational code. While Bitcoin operates on software, any modifications necessitate consensus from developers, stakeholders, and the broader community.
Achieving such a consensus would mean all nodes on the Bitcoin network adopting the proposed amendments accept the modification.
Requiring almost unanimous acceptance is challenging due to Bitcoin’s inherent design to remain the same. Implementing these changes could lead to a hard fork, a protocol change that redefines previously unauthorized actions as permissible. Ideally, all nodes would integrate the changes.
Conclusion
In contrast, a contentious scenario might emerge where only a subset supports the current 21 million BTC threshold. Miners and nodes resisting the modifications would persist with the existing Bitcoin protocol.
This divergence could instigate a competitive rift, resulting in a contentious hard fork and potentially spawning another Bitcoin variant reminiscent of Bitcoin Cash’s emergence. However, what will happen so far out in time is still being determined.
While Bitcoin’s future seems promising today, the outcomes of these long-term forecasts, such as how miners will adapt to a world without block rewards, could be different than anticipated, and acting too early or assuming certainty might lead to mistakes.
“Being too far ahead of your time is indistinguishable from being wrong.” – Howard Marks.