An anonymous entity simply known as Satoshi Nakamoto published the Bitcoin (BTC) whitepaper on the 31st of October 2008, describing details of a new peer-to-peer cash system on a decentralized blockchain network. The whitepaper explains that the entire process of exchanging Bitcoin between users would not require a central authority like a bank. Instead, all users would be able to send and receive BTC as they please.
To do this optimally, the underlying blockchain that supports Bitcoin must possess certain features that uphold the network’s security. Bitcoin was therefore created with an immutable blockchain where no one can change records created on the network.
Satoshi also put a cap on the number of Bitcoins that will ever be created on the network to ensure that BTC retains its value as more coins are produced. This works as a deflationary measure that prevents Bitcoin from succumbing to traditional market forces like inflation. In addition to capping Bitcoin production, Satoshi ensured that Bitcoin would not crumble under inflation, by introducing a peculiar process of creating new coins.
How are Bitcoins Produced?
Miners produce new Bitcoins by solving very complex math problems using specialized computers to create blocks. The first specialized computer that correctly solves the math problem introduces the next block into the network. After this, the process of block production restarts.
The mining process uses the SHA-256 hashing algorithm, which also secures transactions on the Bitcoin blockchain. At any point, thousands of miners are expending time and resources to generate valid hashes to confirm transactions and create new blocks. Bitcoin mining is so costly and highly energy intensive that some governments limit or outright ban mining activity. A 2022 estimate suggests that Bitcoin mining consumes 127 terawatt-hours (TWh) annually, more than entire countries like Norway and Argentina.
Upon successful production, miners receive block rewards for their efforts. These block rewards reduce by 50% after every 210,000 blocks in a halving event, which happens every four years. Following each halving, a miner only gets half the stated rewards per block.
Satoshi Nakamoto mined the first block, called the Genesis Block or Block 0, on the 3rd of January 2009, and set Bitcoin’s block reward at 50 BTC. At the first halving in 2012, the block reward was reduced by 50% to 25 BTC, and another 50% in 2016 to 12.5 BTC. As of the last halving event in 2020, the block reward was 6.25 BTC.
As Bitcoin miners produce more blocks and the asset’s popularity increases, more use cases for the coin’s adoption emerge. Today, Bitcoin serves different purposes and is exchanged at many points of payment as a replacement for fiat currency.
For instance, several online merchants allow customers to make Bitcoin payments. These merchants use automated payment gateways that immediately convert Bitcoin to fiat currency upon payment. In addition to trading merchants, online casinos have begun integrating these payment gateways to access a broader range of potential customers. Some of the best online casinos, according to Techopedia experts, allow gamblers to place wagers across thousands of games using Bitcoin instead of fiat currencies.
Bitcoin is also an increasingly popular option for remittances. Many people looking to make cross-border payments sometimes prefer to simply send Bitcoin between wallets to avoid the costly fees associated with traditional methods of transferring money.
Another widespread use of Bitcoin is its function as a store of value. Since Bitcoin is speculative, it can swing drastically in either direction, resulting in heavy gains or losses for the investor. Many people simply buy Bitcoin and hope to enjoy exciting benefits if the price spikes.
Generally, the continuous production of Bitcoin and verification of transactions contribute to use cases for the world’s largest cryptocurrency by market cap. So, what happens when all Bitcoins are mined and there are no more blocks for miners to create?
What Happens When There Is No More Bitcoin Left?
Bitcoin has a finite supply of 21 million coins as set by Satoshi Nakamoto. Since no one knows who Satoshi Nakamoto is, no one can be sure why Nakamoto decided on this number. Nonetheless, enforcing a finite supply on Bitcoin helps the network fight inflation as the asset becomes popular and miners produce more coins.
As of July 2023, nearly 19.5 million Bitcoins have been mined, almost 94% of the total possible supply. Estimates suggest that miners produce 144 blocks per day, which puts the average number of Bitcoins mined per day at 900 since the last halving – if the reward for each block is 6.25 Bitcoins. Accounting for the number of blocks produced daily, and the halving event every 4 years, the last Bitcoin may not be mined until 2140. While it is theoretically possible for Bitcoin nodes to increase the 21 million cap, it is practically impossible for all nodes to agree to change the limit.
There are several developments we can expect from maxing out Bitcoin’s mining limit. Firstly, the price of Bitcoin is likely to spike. Assuming demand consistently increases, and no more Bitcoins are produced, the price of Bitcoin will likely rise over time.
Another effect is a reduction in miners’ earnings. Miners currently earn from transaction fees, as well as block rewards from producing new blocks. After all 21 million Bitcoins are fully in circulation, miners will have to rely solely on transaction fees. This could significantly increase these fees since they would be the miners’ sole income channel. Unfortunately, increasing transaction fees could negatively impact adoption because high fees would make the network less accessible.
On the upside, the situation could lead to an increase in the number of Layer-2 (L2) solutions. If the original Bitcoin network becomes less accessible for reasons such as increased transaction fees, L2 projects may become more popular as they would help to sustain Bitcoin adoption by providing users with a cost-effective way to process transactions. L2 solutions would also decongest the Bitcoin network, potentially reducing the transaction costs on the original blockchain.