What happens when the 21 million bitcoin is mined?

An invisible countdown is on, and it will stop in 2140. This date will mark the end of the creation of new Bitcoin, as the last Bitcoin will have been mined. From then on, we will only have to rely on bitcoin already in circulation. But why is this deadline so important, and what will be the consequences?

Bitcoin was conceived as a decentralized alternative to banks, a system where no one has absolute control. Each user has the freedom to own, send and receive funds without intermediary. To secure these exchanges, the blockchain was created. Blockchain is a large digital and shared public account book, where each transaction is grouped into a block. These blocks are validated by thousands of computers and added one after the other to form a chain of blocks, hence the name blockchain.

But how can we encourage users, or rather miners, to devote computing power to creating these blocks? The answer is simple: by paying them. The creation of a block requires complex mathematical problems, which requires considerable computing power. The minor who manages to create a valid block receives a reward in Bitcoin. This reward has evolved over time, from 50 bitcoin per block originally to 3,125 bitcoin today, thanks to the halving process that occurs every 4 years.

Halving is a key mechanism that ensures the rarity of Bitcoin. By gradually reducing the reward of miners, it guarantees that there will never be more than 21 million bitcoin in circulation. This limit is beneficial because it prevents Bitcoin from devaluing itself, unlike traditional currencies that can be printed at will, thus creating inflation. But once the last bitcoin is extracted in 2140, miners will only have transaction costs as a financial incentive. This evolution is planned from the beginning, as evidenced by the White Paper of Bitcoin.

The end of Bitcoin mining in 2140

In 2140, the last bitcoin will be mined, marking the end of the expansion of this cryptocurrency. From that date, there will be no new Bitcoin created, and miners will have to settle transaction fees to be paid. This deadline raises questions about Bitcoin security and decentralization. Will miners continue to secure the network without the reward in Bitcoin? This transition could have major implications for stability and confidence in the system.

The crucial role of halving

Halving is an essential mechanism in the Bitcoin ecosystem. Every 4 years, the reward of minors is divided by two, thus gradually reducing the number of new bitcoin in circulation. This process ensures the rarity of Bitcoin, a key element to maintain its value. Currently, almost 19.77 million bitcoin have already been mined, and the halving guarantees that there will never be more than 21 million bitcoin in circulation. This limit is crucial to avoid currency devaluation.

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Today, transaction fees represent between 0.5 and 10% of the total remuneration of miners, in addition to the 3.25 Bitcoin per confirmed block. Users can also pay more to prioritize their transactions. To understand better, let’s take the mountain analogy with the gold seekers. The more miners, the more the safety of the mountain (or blockchain) is enhanced. However, if miners discover that there is only iron left in the mountains, fewer will venture there. What will become of this mountain, or in our case, the blockchain?

Why worry about a problem that will happen in 120 years? Will the transaction costs be sufficient to maintain the profitability of the miners? If miners become less profitable, they could simply disconnect their machines, which would result in a decrease in the hash rate and would compromise Bitcoin’s security. The hash rate, measured in H per second, indicates the number of attempts to resolve the mathematical calculation that miners make per second. The more miners, the more the overall hash rate increases, and the network automatically adjusts the mining difficulty to maintain block creation every 10 minutes.

In 2140, when the 21 million Bitcoin were mined, the mining difficulty will decrease considerably to maintain this pace. This could lead to a decrease in network security if the miners desert. Vitalik Buterin, the creator of Ethereum, expressed concern about this. In theory, the price increase of Bitcoin will compensate for this decline, but this theory has its limits. For it to hold, the price of Bitcoin must increase continuously over the long term. However, in the event of stagnation or falling prices, transaction costs may no longer be sufficient to compensate for electricity and equipment costs, prompting miners to abandon the network.

The challenges of network security

If transaction fees increase to offset the disappearance of block rewards, this could discourage users from using the Bitcoin network, especially if other blockchains offer faster and cheaper transactions. These alternatives could be more attractive, resulting in a leak of users and miners, and consequently, a decrease in the security and relevance of Bitcoin over the long term. To ensure security, transaction costs must be high enough to attract miners, but this poses a paradox for a currency that is intended to be that of the people. If only the wealthy can afford to pay these fees, Bitcoin risks losing its very essence, becoming the currency of a certain elite.

The Paradox of Big Bitcoin Holders

Large holders of Bitcoin are looking for network security and reliability to keep their wealth. However, by accumulating and immobilizing these bitcoins, they can indirectly weaken the security they seek so much. Indeed, if a large number of Bitcoin remains inactive, there are fewer transactions on the network, which means fewer fees generated. This reduces the remuneration of minors and can make mining less profitable, causing some miners to leave the network. This creates a paradox where large holders, seeking to protect their wealth, can actually weaken the network.

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With the gradual exhaustion of the 21 million bitcoin, the issue of safety and profitability of mining becomes crucial. How to maintain the interest of miners without increasing transaction costs for Lambda users? One of the solutions envisaged is the increase in the volume of transactions thanks to increased democratisation of Bitcoin. This would generate enough costs without stifling users. Another promising solution is the Lightning Network, a second layer technology that allows fast and inexpensive transactions.

Lightning Network: A Fast Track for Transactions

The Lightning Network is often compared to a fast track on a highway. If the blockchain is the main track, the Lightning Network allows instant transactions at no high cost. For example, Bob and Carlo can open a payment channel together, blocking a certain amount of bitcoin. Transactions between them are recorded in this channel without being immediately added to the main blockchain. When they decide to close the channel, only the final balance is recorded on the blockchain. This allows you to unload the main blockchain and keep transaction charges low.

Challenges and criticisms of the Lightning Network

Despite its advantages, the Lightning Network is not without criticism. Some purists believe that Bitcoin’s essence lies in its main blockchain and that any deviation could weaken the decentralization of the network. In addition, the Lightning Network is still young and needs to be proven on a large scale. However, Bitcoin is a software designed to evolve, and updates like SegWit in 2017 have already allowed to increase the number of transactions per block.

The adaptation of mining and the future of Bitcoin

The mining industry is already adapting to remain profitable. More than 60% of the energy used for mining comes from renewable sources, and mining makes it possible to exploit otherwise wasted energy resources. Countries like Iceland, Japan and the United Arab Emirates use bitcoin mining to accelerate their energy transition. With more powerful and efficient machines, a high hash rate could be maintained while reducing costs for miners, thus offsetting the decline in block incomes.

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