Sirwin
Sirwin
Photo by Marco Verch

Bitcoinpocalypse?

By Keilun | Decrypto | 8 Apr 2020


Bitcoin is not infinite. By design there are a finite number of bitcoins, 20 999 999, 977 to be exact. Quite a lot have already been burned in the infamous Mt. Gox event, when almost 750,000 of customers' bitcoins have been lost, and around 100,000 of the exchange bitcoins, totaling around 7% of all bitcoins. 

As part of Bitcoin's coin issuance, miners are rewarded a certain amount of bitcoins whenever a block is produced (approximately every 10 minutes). When Bitcoin first started, 50 Bitcoins per block were given as a reward to miners. After every 210,000 blocks are mined (approximately every 4 years), the block reward halves and will keep on halving until the block reward per block becomes 0 (approximately by year 2140). As of now, the block reward is 12.5 coins per block and will decrease to 6.25 coins per block post halving.

Mining also requires a lot of energy, never mind the cost of equipment. Today, bitcoin has a bigger annual carbon footprint than Switzerland. However, there is no shortage of bitcoin miners because the price of bitcoin is high, meaning that the new coins they receive offsets the price of running a mining pool. But one day, the cost of mining bitcoin could overshadow its rewards.

Today we already discuss the profitability of mining, with many ventures closing after the March 2020 crash. Almost 99% of all bitcoins will be circulating by 2036, so the question is "who will still be mining"?

What will happen to the blockchain without miners? 

Let's look at how miners can make money.

One way bitcoin miners make money is through transaction fees. These fees are related to supply (bitcoin blocks) and demand (how many people initiate transactions) and it is difficult to determine if those fees will be enough when there will be no rewards or difficulty will be so high that mining a block will become a rare event.

Also with the current rates of electricity and transaction fees, mining could soon become unprofitable. Fewer miners would translate to longer processing times or no transaction processing at all.

One way to incentivize miners would be to increase transaction fees. This could happen organically if bitcoin were more widely adopted. In other words, more demand for transaction processing means higher fees. This happened in January 2018, when transaction fees peaked at around $54 dollars. But if transaction fees are too high for too long, no one will initiate transactions. No transactions also mean no income for miners.

The current bet for miners is that the price of bitcoin will rise exponentially, while the costs will remain stable (or increase linearly) to guarantee high profits for the next few years.

And then what will happen after we’ve mined all the bitcoin? At the moment, every "expert" voices his opinions but we know very little, but don’t forget that bitcoin is a public decentralized ledger. No matter what happens, we will see it all: market cap, transaction fees, and halvenings will always be right before our eyes.

 

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Keilun
Keilun

Technology enthusiast and avid photographer.


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Decrypto

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