Bitcoin is similar to gold in many ways, which is why we singled out a detailed article that we touched on earlier titled:
Is it better to invest in bitcoin or gold?
Like gold, Bitcoin cannot be generated randomly, as this requires mining and mining.
While gold must be extracted from the earth with physical equipment, bitcoin must be mined through computational means and digital software.
Bitcoin also has a stipulation in its source code that it must have a finite and infinite supply.
For this reason, only 21 million bitcoins will ever be produced.
On average, these bitcoins are offered to the bitcoin supply at a fixed rate of one block every ten minutes.
Additionally, the number of bitcoins issued in each of these aforementioned blocks is reduced by 50% every four years.
The supply of Bitcoin is limited to only 21 million BTC:
In fact, there are only 21 million bitcoins that can be mined in total.
Once miners unlock this many bitcoins, the supply will be exhausted.
But it is possible that the Bitcoin protocol could be changed to allow for a greater supply.
What will happen when the global supply of bitcoin reaches its limit?
This is the subject of much controversy among cryptocurrency enthusiasts.
Currently, about 18.74 million bitcoins have been mined.
This leaves fewer than three million products yet to be released for circulation.
While there can only be a maximum of 21 million bitcoins, because people lost their private keys or died without leaving their private keys instructions to anyone, the actual amount of bitcoins available in circulation could be in the millions.
Bitcoin Mining Bonuses:
The first 18.7 million bitcoins have been mined in the 10 years since the initial launch of the bitcoin network.
With only three million BTC remaining, it may seem that we are in the final stages of Bitcoin mining.
This is true, but in relative terms.
While it is true that the vast majority of bitcoins have already been mined, the timeline is more complex than that.
Bitcoin mining rewards miners with a large portion of the bitcoin upon successful block verification.
This process adapts over time.
When Bitcoin was first launched, the reward was 50 BTC.
In 2012, the ratio halved to 25 bitcoins.
In 2016, it halved again to 12.5 bitcoins.
As of February 2021, miners earn 6.25 bitcoins for every new block mined, equivalent to about $225,000 based on the July 4, 2021 value.
This effectively halves the inflation rate of Bitcoin every four years.
The reward will continue to halve every four years until the last bitcoin is mined.
In fact, the final bitcoin is not likely to be mined until around the year 2140.
However, the Bitcoin network protocol will likely change from time to time.
It is worth noting that bitcoin mining provides bitcoin rewards to miners, but the reward size is reduced periodically to control the circulation of new tokens.
Effects of Bitcoin Limitation on Bitcoin Miners:
It would seem that the group of individuals most directly affected by the limitation of bitcoin supply are the bitcoin miners themselves.
Some critics of the protocol claim that miners will be forced to turn away from the block rewards they receive for their work once the supply of bitcoin reaches 21 million in circulation.
But even when the last bitcoin is produced, miners will likely continue to actively and competitively participate and validate new transactions.
The reason is that every bitcoin transaction has a transaction fee associated with it.
These fees, while today representing a few hundred dollars per block, can rise to several thousand dollars per block, especially as the number of transactions on the blockchain grows and the price of Bitcoin rises.
In the end, it will function like a closed economy, in which transaction fees are assessed like taxes.
And as a quick fact, El Salvador submitted a legal tender for Bitcoin on June 9, 2021 and is the first country to do so.
The cryptocurrency can be used in any transaction where the company can accept it.
The dollar is still the base currency in El Salvador.
Special considerations:
It is worth noting that it is expected that it will take more than 100 years before the Bitcoin network will mine its last coin.
In fact, as the year 2140 approaches, miners will likely spend years receiving rewards that are actually just small portions of the final bitcoin to be mined.
A significant reduction in the reward volume could mean that the mining process will completely change before the 2140 deadline.
It is also important to keep in mind that the Bitcoin network itself is likely to change drastically from time to time.
Given how much has happened to Bitcoin in just a decade, new protocols, new ways of recording and processing transactions, and any number of other factors may affect the mining process.
The latest significant event is the Office of the Comptroller of the Currency (OCC) letter in January 2021, in which it authorized the use of cryptocurrency as a payment method, PayPal's introduction of bitcoin, and Tesla's acceptance of bitcoin to buy its cars and solar roofs. But Tesla recently reversed course on accepting bitcoin in May 2021, citing environmental concerns about the resources needed to mine bitcoin.
Is it possible to transform bitcoin mining?
Niklas Nikolaisen, founder of Bitcoin Suisse, expects Bitcoin (BTC) to move to a Proof-of-Stake (PoS) once the Ethereum network proves that the algorithm works.
Nikolaissen argues that the current proof-of-work (PoW) consensus algorithm of Bitcoin-understoodThe flagship that was actually pre-existing in Bitcoin, but has since become inseparable from the cryptocurrency - likely to change in the future.
In excerpts from an interview for a German television documentary, recorded in October 2019, Nikolaissen said:
Bitcoin's transition to Proof-of-Stake is not planned, but the second largest cryptocurrency Ethereum, will move to a Proof-of-Stake concept that requires less electricity, already in a few months.
I'm sure, once the technology is proven, Bitcoin will adapt to it too.
Once you've demonstrated that Proof of Stake is working well, it will be a better system than Proof of Work.
On many occasions, the common perception that high energy consumption is the “Achilles heel” of Bitcoin has been criticized by some clean energy proponents, who, like Nikolajsen, focus on energy sources, rather than consumption levels.
Beyond the energy issue, the debate over PoS versus Proof of Work raises questions of economic fairness, network security and decentralization, and in the end it remains only speculation.