What will happen when bitcoin mining ends? Eschatological reflections
What will happen when bitcoin mining ends? Eschatological reflections
Blockchain

What will happen when bitcoin mining ends? Eschatological reflections

By Fabio Lugano - 13 Oct 2018

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Bitcoin was created with a limit. No more than 21 million BTCs can be issued and the prize for each mined block decreases over time according to a process called halving.

How many BTCs have been extracted so far? About 17 million:

bitcoin mining ends

Among other things, this type of estimate does not take into account that a certain number of bitcoins, especially those created in the early stages, have been lost over the years.

Chainalysis estimates that between 2.7 and 3.7 million BTCs have been lost or destroyed and are not recoverable. This makes the total number of bitcoins between 17 and 18 million at most, and therefore there are still only about 3.5 million minable bitcoins.

Clearly, the fact that the difficulty of mining is growing means that there will be no decisive interruption in the extraction of new bitcoins, but it will be a progressive process: the quantity extracted will decrease until it almost disappears, in a timeframe that could be decades, although everything depends on the growth of the hashpower used.

What will happen at that point?

Once the last bitcoin is mined, the remuneration for the miners will consist exclusively in the commissions deriving from the validation of the transactions that will become prevalent as the bitcoins run out.

bitcoin mining endsCurrently, the average fee per transaction is very low, being about 5 cents, but during the peak of the bubble, the simplest transaction with three confirmations cost as much as 37 dollars. Will future transactions be sufficient to support mining?

If we had to make an estimate with today’s data the answer is no because the transaction fees are equal to a figure ranging between 100 and 150 thousand dollars globally, which is absolutely not able to support the currency.

Having said that, it is very difficult to make predictions for the future. In general, we should consider the combination of several factors, some in contrast with each other, such as:

  • the diffusion in the use of Bitcoin;
  • the evolution of the computation capacity, roughly and empirically indicated by Moore’s Law, that foresees the doubling of the transistor density every couple of years;
  • the Gresham’s Law that makes less used the currencies whose value is tending to a revaluation, given that these currencies tend to be maintained as a store of value;
  • the birth of substitutive cryptocurrencies which can reduce the use of bitcoin

In order to make practical comparisons, a revaluation of BTC after the exhaustion of its production on the one hand increases the value of the commissions, but on the other, Gresham’s law comes to counteract the spread in practical use in case of progressive revaluation.

In the same way, if a lower remuneration could lead to a concentration of mining, the progressive growth of the computational capacity could bring back this activity in the capacities of all the operators, contrasting the previous push.

To conclude, it is difficult to predict at present what will happen to mining when the threshold of 21 million BTC is reached, also because there may be changes in the consensus algorithm.

Surely as we approach the fateful threshold we will have a clearer idea about whether we are moving towards centralization, decentralization or if mining will still be convenient.

Fabio Lugano

Graduated with honors from Bocconi University, Fabio is a consultant for companies and wounded shareholders of the Banche Venete. He is also the author of "Scenari Economici", and lecturer and analyst of cryptocurrencies since 2016.

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