WHAT HAPPENS WHEN ALL THE BITCOIN IS MINED?

Bitcoin miners are rewarded for their work in verifying and processing Bitcoin transactions. They are rewarded with a certain amount of Bitcoin for each newly confirmed block plus the transaction fees. The total reward is referred to as the block reward.

The block subsidy is an essential incentive for miners to continue verifying and processing transactions, as they are miners’ primary source of income. However, the amount of Bitcoin subsidy rewarded for each block is finite. Eventually, the block subsidy will cease to exist, and the question arises: What happens to the miners’ earnings after the block subsidy runs out?

The debate over this has been going on for years. But first, let’s find out when and how this will happen.

The fixed supply limit of Bitcoin is 21 million. This was intentional and planned by Satoshi Nakamoto, the creator of Bitcoin.

As of January 2023, 19.25 million Bitcoin are in circulation, leaving 1.75 million Bitcoin yet to be mined.

WHEN WILL THE BITCOIN BLOCK SUBSIDY RUN OUT?

The Bitcoin block subsidy is halved every 210,000 blocks, approximately every four years. When Bitcoin was created, the block subsidy was a whopping 50 Bitcoin. Since then, there have been three halving events, with the next event expected in 2024.

The current block subsidy is 6.25 Bitcoin, with the next halving event generating 3.125 Bitcoin per block.

If you do the math of halving the block subsidy every four years with an average block time of 10 minutes, you’ll conclude that the last Bitcoin block subsidy will be produced in the year 2140. After that, there will be no more new Bitcoin to mint.

If you do the math of halving the block subsidy every four years with an average block time of 10 minutes, you’ll conclude that the last Bitcoin block subsidy will be produced in the year 2140. After that, there will be no more new Bitcoin to mint.

WHAT HAPPENS TO MINED EARNINGS AFTER THE BLOCK SUBSIDY RUNS OUT?

Many believe Bitcoin mining will become unprofitable when the block subsidy is reduced to zero, forcing miners to cease their operations. Thankfully, this is far from the truth! The reality is that mining will remain profitable as it transitions to transaction fees only. To understand this, it’s essential to know the two different types of rewards that miners receive, referred to as block rewards. These are the block subsidy and transaction fees.

Block Subsidy + Transactions Fees = Block Rewards

The block subsidy is new Bitcoin issued to miners as a reward for mining. These are fixed for every Block mined but are cut in half every 210,000 blocks, approximately every four years.

Transaction fees are incurred whenever a user sends Bitcoin. These fees are paid to miners for processing and verifying the transaction. The amount of transaction fees users pay is directly proportional to the usage of the Bitcoin network.

The more users transact Bitcoin, the more the network is congested, resulting in higher fees. This is because Bitcoin miners will prioritize the more considerable transaction fees from the mempool and verify these first, as they’ll receive more Bitcoin compared to the smaller transaction fees.

Transaction fees currently make up around 2% of the block reward. However, as the adoption of Bitcoin grows and the block subsidy continually decreases to zero, the fees are expected to increase and make up a more significant portion of a miner’s earnings. This is by design.

The eventual disappearance of the block subsidy does not mean the end of mining. Instead, miners will transition to earning income from transaction fees. This shift will continue to ensure the Bitcoin network’s security, as miners will still be incentivized to keep the network secure.

As long as the Bitcoin network is used, miners will be incentivized to secure it.

WHY WOULD USERS STILL USE BITCOIN AS A PAYMENT METHOD IF IT’S EXPENSIVE TO TRANSFER?

Users will likely use layer 2 protocols, like the Lightning Network, or sidechains for smaller transactions to minimize transaction costs. For example, the lightning network makes individual payments faster and cheaper as it transacts off-chain. The lightning network then mixes and aggregates all the inputs and outputs to form a single transaction on the Bitcoin blockchain.