According to the M2 approach (The Federal Reserve’s main measure of the nation’s money stock), the money supply in the US has expanded by more than 40% since January 2020. As has been seen throughout history and in the present, inflation occurs when there are no clear constraints on the supply of currencies and when governments are free to issue money whenever they like.
In contrast, Satoshi Nakamoto, the person who invented Bitcoin, set a limit on the number of outstanding Bitcoins that could ever exist at 21 million. The people that will profit from the creation of new Bitcoins as they are mined are the bitcoin miners who process and validate transactions; a supply cap will therefore have an effect on their income.
Depending on the blockchain’s chosen consensus process, the individuals that verify transactions are collectively known as validators, but they may alternatively be referred to as stakers or miners (proof-of-stake or proof-of-work, respectively). In this system, block rewards are the cryptocurrency tokens that miners or stakers receive in exchange for their efforts on a blockchain. A user that assists in the verification of transactions on a blockchain system is thus given a share of newly created digital tokens as a block reward.
Block rewards also serve as the sole issuance mechanism for putting freshly created currencies into circulation, as was described in our earlier articles. These are distributed to each productive validator who finds (miners) or suggests (stakers) new blocks. These incentives are sometimes constant, meaning that the same number of tokens are always issued as block rewards, while other times the number of coins given as block rewards is steadily reduced over time.
Every 210,000 blocks, or roughly every four years, Bitcoin experiences a “halving.” This indicates that the block reward granted to miners gradually decreases over time. Successful miners have been receiving 6.25 BTC for each block found since the last halving in May 2020.
These numbers and block reward schedules change significantly between different projects. Since the protocol’s 2009 inception, Bitcoin’s block rewards have been cut in half three times. They will keep doing so until the 21 million coin maximum supply is reached. Thereafter, there won’t be any more block rewards or coin creations.
The transaction fees that are collected when a Bitcoin block is introduced serve as the miners’ other source of income because their income will be significantly impacted every four years. Transaction fees do not now provide a miner with a sizable portion of their income.
What Will Happen When Every Bitcoin Is Mined?
Around the year 2140, the last bitcoin is anticipated to be mined. The number of coins in circulation will always be fixed at the same quantity once all of bitcoin has been mined. The biggest effect of approaching and eventually surpassing the supply cap for bitcoin will be that mining will become much less lucrative. At that moment, bitcoin miners will still be compensated, but only from transaction fees rather than from freshly created coins.
Since the cryptocurrency was introduced in 2009, about 19 million, or 90%, of bitcoin, have already been created through mining. It is planned for the mining of new bitcoin to slow down over time. The payout per block had decreased to just 6.25 bitcoin as of 2022 from its initial payment of 50 BTC per block in 2009.
If demand for bitcoin keeps increasing, it is likely that the price would rise when the supply is reached. This is due to the fact that anyone looking to buy bitcoin will have to do it from another individual, giving sellers control over the currency’s price.
Much fewer than 21 million bitcoins will be in active circulation even when they have all been mined. A fifth of all coins created to date, according to data analytics company Chainalysis, are thought to have been lost. That indicates that those bitcoins are locked in wallets with lost keys, which may be the result of forgotten passwords, lost hard drives that had the keys, or even locked in wallets that belonged to people who have since passed away but never shared the passwords required to access them.
