What will happen after the last Bitcoin halving?
Precisely every 210,000 mined blocks that are added to the Bitcoin blockchain, the reward for the miners is inevitably halved.
In the beginning, back in 2009, miners who were able to mine a block received rewards of 50 BTC created from scratch, whereas as early as November 2012 this reward was reduced in half and brought it down to 25 BTC for the first time. In July 2016 it was then reduced to 12.5 BTC, and in May 2020 it will be adjusted to 6.25 BTC.
Eventually, the reward will reset to zero at this rate. Bitcoin is divisible up to one hundred millionth, and this smallest unit of bitcoin is commonly referred to as Satoshi (Sat).
When the reward is reduced by half to less than 1 Sat it will no longer be issued.
The last bitcoin halving
This will take place much later, perhaps even in 2140, since it takes on average about 3 years and 10 months for 210,000 blocks to be mined and the next halving to take place, although it is fair to wonder how will the miners be able to pay the costs of mining if they are no longer given a reward.
The solution is actually very simple: miners, in addition to the reward, already collect fees, i.e. transaction costs that those who want to send BTC must pay to the miners for the transaction to be confirmed, and these fees will continue to be collected by the miners.
For example, at the moment each block contains between 2,000 and 3,000 transactions, whose total fees are around 0.5 BTC and the miners are already collecting these fees. However, their total amount per block is much lower than the reward.
It is worth bearing in mind, however, that the costs of mining depend on the miners’ revenues and are not fixed. Therefore, in the future, as the revenue for the miners decreases, the costs will also decrease.
If anything, it is already possible to imagine that in about a decade or so, most of the miners’ revenues will be fees, with the reward becoming a smaller portion of the revenue. In addition, it is also possible that over the years the overall fees that miners will be able to collect for each block will increase, so the only problem that could arise is a reduction in revenue for the miners.
Should some miners decide to abandon mining due to a lack of revenue, the network is unlikely to be affected. The mining activity will simply become less profitable over time.
A much more significant consequence of the end of halving is the deflation of the bitcoin money supply.
To date, the bitcoin money supply is still inflationary, as it increases by about 1,800 BTC every day (more than 650,000 BTC per year). With the halving in May 2020, it will be reduced to 900 BTC per day (about 330,000 BTC per year), i.e. it will increase by about 1.8% per year.
Eventually, after the last halving, this inflation of the bitcoin money supply will not only stop, but will even become negative, due to BTC stored on public addresses for which private keys will be lost. This is a well-known phenomenon, and already taking place, which will inevitably decrease the bitcoin money supply after the last halving.
An inflation of the monetary mass lower than 1.8% is already small, and after the next halving, when it will fall below 0.9%, it will become almost irrelevant: the deflating effects of BTC could start to be detected well before the last halving because there is not so much difference between an inflation of 0.9% and one of 0.45%.
Consequently, it will not be necessary to wait for the last halving to verify if bitcoin really has a deflationary nature, because the deflationary processes, as a result of the BTC that are inevitably lost every year, will start much earlier.