What will happen when the last Bitcoin is mined?

The halving of May 11, 2020 brings the question back to the forefront: what will happen when miners have mined the last Bitcoin? In order to understand the issues behind the 21 million Bitcoin limit, it is worth recalling its nature before recalling how the miners who keep the ecosystem running are compensated.

Bitcoin, limited by nature
Satoshi Nakamoto’s whitepaper, written 11 years ago, suggested that there would never be more than 21 million Bitcoins (BTC) mined and in circulation.

In many ways, Bitcoin is comparable to gold, in terms of its store of value, but also because it needs to be mined. It cannot be issued arbitrarily since its environment is defined as closed and finite. But its virtual dimension, its divisibility, the fact that it can be exchanged remotely and its — undeniable — decentralization mark major differences with gold.

The resulting transparency and its programmed supply by nature makes Bitcoin an asset that has many advantages over gold, whose available stock is still unknown to this day.

The limit on the number of Bitcoins in circulation is predetermined by the Bitcoin protocol. As such, new coins enter circulation as new blocks are created on the Bitcoin blockchain. All of this is done at a controlled rate:

“To date, 18.5 million bitcoins have been mined, which is 2.5 million bitcoins waiting to be mined.”

Miners’ compensation
Bitcoins are created through mining, which is the essential process of the Bitcoin blockchain. It is the means by which transactions are verified before they are secured. The Proof-of-Work (PoW) is used during the process of creating (validating) a block.

It is also a system that guarantees the security of a blockchain such as Bitcoin. More precisely, through the security of the network, miners ensure the proper functioning of the blockchain by creating new blocks that contain these new transactions.

As a result, miners earn a commission on the transaction they validate, and all miners compete to mine the transaction that would be the most profitable and advantageous to them.

Finally, when a block is created, they are paid in BTC and this is how new bitcoins come into circulation.

The implications of halving
The compensation that comes from mining a block changes over time at a regular rate. Every 210,000 blocks, or about every 4 years, a so-called halving takes place.

Literally, halving means halving the miner’s BTC earnings. Each halving involves halving the number of Bitcoins issued when a new block is validated on the Bitcoin blockchain.

At its launch, the reward for mining a block was 50 BTC, four years later, at the first halving in 2013, the remuneration was halved.

Subsequently in 2016, this reward was again halved to 12.5 BTC. Thus, the last halving on May 11, 2020 caused the reduction of the remuneration for mining a block to 6.25 BTC.

You see us coming, this means that in time, the remuneration of miners in BTC tends to 0, and this deadline should occur in 2140.

Considerations
It is fundamental to emphasize that the remuneration of miners will not become zero despite the end of money creation. In this case, they will continue to receive the remuneration related to transaction fees.

As a reminder, each transaction is currently subject to a small fee in order to be operated. Eventually, transaction validation should be the alternative to blockchain-based reward. And this, without necessarily making the transaction fees more expensive.

Similarly, if it is felt that transactions are becoming too expensive, the development of the Lightning network is a solution. In addition, it would allow transactions to be carried out on an interface other than the Bitcoin blockchain at a lower cost.

In this sense, the entire Bitcoin ecosystem relies heavily on the interest of miners. Their profits are based almost entirely on the price of BTC, both for the reward offered by mining and for the transaction fees.

While there is every reason to believe that when the last block is mined, the rewards of mining will be reduced to the commission needed to secure the network — the transaction fee — and that Bitcoin will become a purely deflationary currency, there are other considerations.

By 2140…
It is estimated that by 2140, the Bitcoin network is likely to undergo changes. In light of what Bitcoin has experienced over the past ten years, we can imagine a hardfork (or a wholesale change in the rules governing the blockchain) altering the Bitcoin blockchain landscape and requiring all miners to be updated.

But still, by 2140, we can envisage massive use of the Lightning Network, or the adoption of solutions like Blockstream, which seek to improve and develop Bitcoin so that its protocol reaches its maximum potential via BIPs (Bitcoin Improvment Proprosal), and the development of sidechains that overcome the limitations of Bitcoin.

For example, Blockstream is proposing the adoption of Liquid, a sidechain or “collateral chain” launched in September 2018 as an inter-exchange settlement network with L-BTC or “Liquid Bitcoin” as its primary asset.

The Liquid network has different functionality, but direct bridges between these two networks would thus address Bitcoin’s privacy and scalability issues.

Scalability refers to the ability of a system to continue to function normally as the number of users increases. Through parallel improvements such as Liquid, adjustments to the Bitcoin protocol can be made without changing it.

In response to the inherent limitations of the Bitcoin protocol, the more radical believe that a redesign of the protocol, or even an alliance of protocols, is an option.

But also, an interoperability of blockchains would allow to share information freely through the networks of all blockchains. These solutions would theoretically overcome the limit of 21 million Bitcoins in circulation.

Bitcoin in the light of history
If it will be at least 120 years before the last Bitcoin is mined, there are still many years ahead of us to improve the protocol.

Bitcoin’s durability in the face of our economic model, which has been plagued by crises since the end of World War II and is running out of steam, would seem to favor a massive adoption of crypto-assets.