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What happens when all bitcoins are mined?

One assumption made by people who have no understanding of the system is that as soon as all Bitcoins have been mined, the miners will cease to verify transactions because they are no longer rewarded for their work with new Bitcoins.

This assertion is based on some misunderstandings. The first is that miners when mining a block derive income from two different sources. First there is the reward for mining a new block. Miners generate new Bitcoins when they mine blocks. They mine a block every ten minutes, for which they currently earn 12.5 Bitcoins. And then there are the mining fees. These are the fees that Bitcoin users pay to motivate a miner to include their transactions in a block which the latter is mining. They can choose how high the fees are, but if everyone else is paying more, it is possible that their transaction may not be included in a block until later as miners give preference to other transactions. Even when no further rewards are paid for mining new blocks – which will be the case when all Bitcoins have been mined – miners will continue to earn money from fees.

Another misunderstanding is that the quantity of newly generated Bitcoins is not fixed. When Bitcoin was still young, 50 new Bitcoins were generated per block. After every 210,000 blocks (on average around every four years) this number halves. At present the number is 12.5 and at some point in the year 2020 this will halve to 6.25. The last Bitcoin will be generated sometime in the year 2140.

Miners will generate blocks for as long as it is economically worthwhile. A reduction in the reward without a corresponding increase in price – which may occur as a result of the reduced availability of new Bitcoins – would mean that miners would shut down their mining hardware. Since discovering blocks would now take on average longer than 10 minutes, the degree of difficulty would be adjusted, in this case reduced. All remaining miners would now consume less energy for each Bitcoin they generate. This will always balance itself out. Either the price may rise or the number of miners may fall, but in both cases it will always be economically viable for someone to generate new blocks, process transactions and keep the network up and running.