Wednesday, January 9, 2019

What Happens When Bitcoin Reaches 21 Million Coins?

Have you ever wondering what will happen when bitcoin hits 21M cap? Well, you are not alone. There have been a lot of speculations and rumors that flow around bitcoin including when it reaches its limit. When Bitcoin first came into the limelight, it was defined as a cryptocurrency that would not require any centralized party to work. That’s still true hold. It also came with a limited supply, i.e., 21 million coins.

If you go to coinmarketcap.com, you will be able to verify the information. The website lists max supply as 21 million. Right now, the circulating supply of bitcoin is 17.4 million. Just like how precious metals on earth are finite, so is the first decentralized cryptocurrency. Limiting the max supply was necessary as, without it, the value of bitcoin would never shore to new heights.

So, what will happen when bitcoin reaches 21 million caps? Before we try to tackle the question, let’s try to learn how bitcoin and miners work.

How Bitcoin Works

Bitcoin is a decentralized cryptocurrency that has its blockchain. It is a shared public ledger where bitcoin act as the fuel. When a user sends any amount of bitcoin to a receiver, a transaction is created. This transaction will then be broadcasted to the network, where each peer stores a copy of it in the database. For the transaction to be successful, it needs to be mined into a block.

Blockchain uses a distributed consensus system which relies on Proof-of-Work(PoW). It also means that transactions are added chronologically. Once the block is mined, the transactions are successfully confirmed on the network. However, miners need to spend computation power to confirm a transaction. This leads us to our next question, what is bitcoin mining?

Bitcoin Mining

Bitcoin mining is the process of confirming or adding the transactions to the bitcoin ledger. The ledger is composed of blocks, and each block consists of multiple transactions. The whole process of adding transactions to blockchain is known as bitcoin mining. However, it does have its own computation power requirement. Each miner needs to have computers that can process the computation difficulty associated with the block. The consensus algorithm that oversees the whole process is known as Proof-of-Work(PoW). It is effective in ensuring the proper working of the blockchain but is not energy efficient. If you want to know more about bitcoin mining, we recommend reading bitcoinmining.com

What happens when bitcoin reaches 21 million coins?

Now that we have a basic understanding of bitcoin and bitcoin mining, we are now ready to answer the question.

Effect On Bitcoin Miners

With time, the blockchain block size and mining difficulty will increase. This will directly affect the miners. It also means that once the 21 million coins limit is reached, bitcoin miners will not be able to mine any more bitcoin. When this happens, they need to rely heavily on the transaction fees only. These fees will be their only source for maintaining operations. This leads us to an interesting question. Will their operations be unprofitable? After all, they will not be getting any block mining award. We can always argue that the bitcoin mining will decrease as miners will not mine bitcoin, and move to other cryptocurrencies. This can lead to a centralized network and other adverse effects. However, they can make a profit considering that the price of bitcoin is extremely high.

Bitcoin Price

Bitcoin price could see a substantial increase if all the 21 million coins are mined. This is an obvious result of limited supply, and when there is no more bitcoin to mine, people will value it more compared to now. However, that’s just a possibility.

According to Cointelegraph, we will not be able to witness the event of the last bitcoin being mined. According to their calculations, it will take until 2140 before the cap hits. Its 121 years from now. There is no way we can predict or learn how bitcoin will be treated. Will it stay the king or other cryptocurrencies will take its place? That’s a compelling question as it puts an interesting take on the relevance of bitcoin. There is no way, anyone can know. But, if it fails to live that long, we can safely say that the prices won’t reach that high as speculated.

The market demand and sentiment can only determine the bitcoin price at that moment. However, if you ask us, we would bet that bitcoin price will increase substantially.

What happens until we reach there?

There is still more than 100 years before the bitcoin cap hits. That’s a lot of time and it is hard to speculate how bitcoin will go forward from here. We have already seen a rollercoaster ride for bitcoin and there is no doubt that it is becoming hard to mine bitcoin as time goes. Without miners, it would not be possible to run the bitcoin blockchain.

The transactions fees have also not been kind to the miners as the change to the protocol reduced the transaction fees to normal. This happened just after the Segwit which solved two significant issues with bitcoin, it’s scalability and transaction cost. The solution was the removal of the non-signature data, resulting in the reduced block size. Not only that, but Segwit also opened the path to lightning network integration.

source: cointelegraph.com

The lightning network aims to offload the load from the main blockchain and further reduce lightning network. Overall, the future of bitcoin miners doesn’t look bright when the cap hits. Just like any other systems, there should be a proper incentive for bitcoin miners to continue. If there is no proper incentive, we will surely see a drop in bitcoin miners. However, it is too early to worry as the bitcoin 21M cap is still 100 years away. By then, we hope that the bitcoin core developers fix the problem and create a stabilized incentive for bitcoin miners to continue.

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