What Will Happen When the Last Bitcoin Is Mined?

8/29/2024, 10:57:58 AM
Intermediate
Project Analysis
As the last Bitcoin approaches being mined, what changes and challenges will the Bitcoin network and ecosystem face?

Bitcoin, the world’s first decentralized cryptocurrency, was introduced by Satoshi Nakamoto in 2008, and its open-source software was released in 2009. Its decentralized nature has made Bitcoin a unique store of value and a medium of exchange, attracting a significant number of investors, developers, and miners. Despite its widespread adoption and global attention, Bitcoin’s total supply is strictly capped at 21 million.
As the last Bitcoin approaches being mined, what changes and challenges will the Bitcoin network and ecosystem face?

Bitcoin’s Limited Supply and Block Rewards

When designing Bitcoin, Satoshi Nakamoto set its maximum supply at 21 million coins, a feature intended to mimic the scarcity of gold and ensure Bitcoin’s long-term value. This limited supply is a key characteristic that distinguishes Bitcoin from traditional fiat currencies.
In the Bitcoin network, miners receive a fixed amount of new Bitcoin as a reward for each block they successfully add to the blockchain. However, this reward is halved approximately every four years, after every 210,000 blocks, in a process known as “halving.” Since Bitcoin’s inception in 2009, the mining reward has undergone four halvings, occurring in November 2012, July 2016, May 2020, and April 2024. The reward has decreased from 50 BTC per block initially to 3.125 BTC per block after the most recent halving. This halving mechanism is crucial for maintaining Bitcoin’s scarcity and combating inflation, ensuring that the total supply never exceeds 21 million coins, which is in line with its deflationary nature.
Based on the current rate of block generation, the last Bitcoin is expected to be mined around the year 2140. At that point, the total supply of Bitcoin will have reached its cap of 21 million, and no new Bitcoins will be created.

What Will Happen After the Last Bitcoin Is Mined?

The completion of Bitcoin mining will mark a significant milestone in the history of cryptocurrency, fundamentally altering its economic structure and shaping its future trajectory. As Bitcoin’s finite supply is exhausted, the ecosystem will transition from generating new coins through mining to relying entirely on transaction fees to incentivize network participants.

Economic Impact

Currently, Bitcoin miners’ income is derived from two main sources: block rewards and transaction fees. Block rewards are the Bitcoins miners receive for successfully mining a new block, while transaction fees are payments made by users to ensure their transactions are promptly included in the blockchain.
Although transaction fees currently make up only a small portion of miners’ income, this proportion will significantly increase as Bitcoin’s supply becomes fixed. With each halving event, block rewards have diminished, leading to a shift in miners’ revenue structure. According to Glassnode data, transaction fees have increasingly become a substantial part of miners’ income, peaking at nearly 72% of total revenue in early 2024.
Once the last Bitcoin is mined, miners will no longer receive block rewards and will have to rely entirely on transaction fees for income. Over time, transaction fees are expected to become the primary revenue source for miners. Meanwhile, Bitcoin’s deflationary nature may drive its price higher, further enhancing its scarcity and market value. However, this deflation could also create liquidity challenges, potentially limiting Bitcoin’s use as a daily transaction tool.

Network Security Impact

After the last Bitcoin is mined, the network’s security might face challenges, as miners will no longer earn income from block rewards and will depend solely on transaction fees. This shift could have several consequences:
First, the number of miners may decrease. As block rewards vanish, many miners might find it unprofitable to continue mining with just transaction fees, leading some to exit the network. This reduction in miners could lower the overall network hash rate. A significant drop in hash rate would reduce the computational power required by attackers, increasing the risk of a 51% attack on the network.
Second, with transaction fees becoming the primary source of income, fees may rise to maintain enough miner participation for network security. However, excessively high transaction fees could deter users, reducing Bitcoin’s utility as a payment method. Bitcoin’s security is closely tied to the economic incentives for miners; if transaction fees aren’t sufficient to attract enough miners, the network’s long-term security could be at risk.
To address these challenges, the Bitcoin network may need to implement new mechanisms, such as increasing transparency in transaction fees or adopting Layer 2 solutions to alleviate transaction pressure and ensure sustainable security.

Market Value

Once the last Bitcoin is mined, its scarcity will reach its peak, potentially leading to significant short-term price volatility. This could trigger a new wave of speculation or even a price bubble. Pat White, co-founder and CEO of the digital asset platform Bitwave, suggests that Bitcoin’s price may eventually reflect global inflation trends and could even become a reserve currency for some nations.
Jaran Mellerud, a research analyst at Hashrate Index, speculates that by the time the last Bitcoin is mined, its value may no longer be measured in dollars or other fiat currencies. He predicts that the fiat monetary system could collapse, with Bitcoin potentially replacing it as the global standard for value measurement.
Based on these projections, it’s reasonable to predict that after all Bitcoins have been mined, Bitcoin’s primary role might shift towards being a store of value and a form of “digital gold.” Due to its decentralized and immutable nature, Bitcoin could become a key asset for wealth preservation globally. However, its use as a daily payment method might remain limited, constrained by its liquidity and finite supply.

As Bitcoin’s supply reaches its cap, governments around the world may revisit their regulatory policies, with the future regulatory environment playing a crucial role in determining Bitcoin’s market value and adoption. Strict regulations could increase transaction costs, weaken market confidence, and lead to volatility, thereby limiting Bitcoin’s use and market development. Conversely, a more lenient regulatory approach could attract more participants, bolster Bitcoin’s market standing, and encourage companies to develop new applications, such as decentralized finance (DeFi) and payment solutions.
In the DeFi space, Bitcoin’s role may evolve from being a primary transaction medium to serving as a strategic collateral asset or security guarantee. The continued growth of decentralized finance could hinge on Bitcoin’s positioning and functionality within these emerging sectors. As Bitcoin increasingly becomes a scarce asset, its role in the global financial system could be further solidified.
As the last Bitcoin is mined, public and societal confidence in Bitcoin might be put to the test. Whether Bitcoin can maintain its status as a store of value will largely depend on its perceived stability and security over the long term. Future socio-economic factors, such as energy crises or the collapse of traditional financial systems, could significantly impact Bitcoin’s acceptance and use.

* The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.
* This article may not be reproduced, transmitted or copied without referencing Gate. Contravention is an infringement of Copyright Act and may be subject to legal action.

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