Bitcoin is constant – 21 million. When the last Bitcoin is mined, the Bitcoin network will usher in a new era. This article will explore the possible scenarios after the end of Bitcoin mining rewards, including the transformation of miner incentives, network security considerations, the evolution of Bitcoin’s economic model, and the potential impact on the entire cryptocurrency ecosystem.
Bitcoin’s Scarcity Design: Understanding the Significance of the 21 Million Cap
In the Bitcoin white paper released in 2008, Satoshi Nakamoto clearly stated that the total amount of Bitcoin will be permanently limited to 21 million. This design decision is fundamentally different from the traditional fiat currency system, which can theoretically be issued indefinitely. Bitcoin’s scarcity is one of the core pillars of its value proposition, directly mimicking the properties of scarce commodities such as gold.
Bitcoin issuance follows a precise mathematical formula: approximately every four years, the rate at which new Bitcoins are generated is halved, a process known as “halving.” The initial block reward was 50 bitcoins. After three halvings in 2012, 2016, and 2020, the block reward during the period 2020-2024 has dropped to 6.25 bitcoins. At this pace, it is expected that the last bitcoin will be mined around 2140.
This predictable, gradually decreasing issuance curve creates a “digital scarcity”, making Bitcoin the first form of currency in human history with a fixed maximum supply. When all 21 million bitcoins enter circulation, no new bitcoins will be created, and the monetary supply of Bitcoin will be completely fixed.
A major shift in miner economics: from block rewards to transaction fees
Currently, miners’ income comes mainly from two parts: newly mined bitcoins (block rewards) and transaction fees. In the early stages, block rewards constituted the vast majority of miners’ income. But with each halving, the proportion of block rewards gradually decreases, and the importance of transaction fees increases accordingly.
When all 21 million bitcoins are mined, miners will only be able to rely on transaction fees as a source of income. This shift raises some key questions:
Will the fee income be enough to sustain the existing network of miners? Currently, transaction fees account for only a small portion of miners’ total income. According to Bitinfocharts, the transaction fee share fluctuates between 1-3% for most of 2023, and only briefly spikes when the network is extremely congested (such as reaching more than 20% during the 2021 bull market).
Will network security be affected? Bitcoin’s security depends on the computing power (hash rate) invested by miners, and the level of hash rate is directly related to miners’ income. If the fee income is not enough to maintain the current hash rate level, the network may face the risk of reduced security.
How will the transaction fee market form? Under the pure fee model, a true free market pricing mechanism will be formed between users and miners. Users pay different fees based on the urgency of the transaction, and miners prioritize high-fee transactions. This economic dynamic may lead to a stratification between regular transactions and high-priority transactions.
It is worth noting that the Bitcoin network has already experienced changes in the reward structure. Early miners relied almost entirely on block rewards, but now transaction fees have become a non-negligible part. History shows that the Bitcoin ecosystem has the ability to adapt to this gradual change.
The future of network security and consensus mechanism
Bitcoin’s security model is based on “Proof of Work” (PoW), relying on huge hash power to prevent malicious attacks. When block rewards disappear, maintaining this security model will rely entirely on the transaction fee market.
Some analysts believe that transaction fees may not be enough to maintain the current level of security in the long run. CoinShares’ research points out that at the current fee income of about $300,000 per day (2023 level), it is far from enough to support the entire miner ecosystem. This may lead to several results:
Hash rate decline: If income decreases, some miners may exit the network, resulting in a decrease in the overall hash rate. This will reduce the network’s energy consumption, but it may also increase the risk of 51% attacks.
Rising transaction fees: The market may self-regulate and compensate miners by increasing the average transaction fee. This will make Bitcoin more suitable for large settlements rather than small payments.
Popularity of Layer 2 solutions: Layer 2 solutions such as the Lightning Network can significantly reduce the number of transactions on the main chain, making limited block space more valuable, thereby supporting higher fees.
Another possibility is that Bitcoin will eventually modify its consensus mechanism, such as partially switching to Proof of Stake (PoS) or other hybrid models. However, such a fundamental change will face huge community resistance because it may undermine Bitcoin’s core value proposition of “immutability”.
Fundamental shift in Bitcoin economics
After all 21 million Bitcoins are in circulation, Bitcoin’s monetary properties will undergo a qualitative change:
From an inflationary asset to a completely non-inflationary asset: Before this, Bitcoin’s annual inflation rate, although gradually decreasing, is still positive. After all are mined, Bitcoin will become a zero-inflation asset, and its monetary properties are more similar to gold.
Changes in holding motivations: Without new Bitcoins entering the market, holders may be more reluctant to spend Bitcoin, leading to increased “hoarding” behavior. This may affect Bitcoin’s practicality as a medium of exchange.
Price volatility: In theory, a fixed supply should reduce price volatility because there is no longer regular selling pressure from newly mined Bitcoins (miners usually need to sell some of their new coins to pay operating costs). However, the lack of an inflation adjustment mechanism may also make Bitcoin more sensitive to changes in demand.
Monetary policy comparison: Against the backdrop of widespread inflation in global fiat currencies, Bitcoin’s absolute scarcity may enhance its status as “digital gold”, especially during periods of currency devaluation.
Broad impact on the cryptocurrency ecosystem
As the “flagship” of cryptocurrencies, the end of Bitcoin mining will have a profound impact on the entire industry:
Market psychological impact: The full circulation of the total amount of Bitcoin may strengthen its scarcity narrative and attract more institutional investors to allocate it as an anti-inflation asset.
Positioning of competing coins: Many competing coins (altcoins) have no supply cap or a much higher cap than Bitcoin. Bitcoin’s complete scarcity may consolidate its position as “digital gold” while other cryptocurrencies focus on different use cases.
Reconfiguration of miner resources: Bitcoin miners may shift some of their computing power to other PoW currencies that are still profitable, or completely transform into transaction processing experts.
Shift in regulatory focus: As the issuance of new coins stops, regulators may turn more attention to Bitcoin’s trading and usage patterns rather than its issuance mechanism.
Potential Challenges and Solutions
Despite its ingenious design, Bitcoin still faces some challenges after all 21 million coins are mined:
“Blockchain Doom” theory: A few economists believe that when block rewards approach zero, the Bitcoin network may fall into a death spiral – insufficient fee income leads to miners’ withdrawal, reducing security, which in turn weakens user confidence and further reduces transaction demand. However, Bitcoin supporters believe that the market will self-regulate and find a new balance.
Transaction batching and efficiency improvement: In order to increase the value of block space, the Bitcoin network may see more application of transaction batching technology, so that each block can contain more value transfers.
Monetization of timestamp services: Miners may develop new service models, such as using the timestamp function of Bitcoin blocks to provide security services to external systems and create additional revenue streams.
Possibility of soft fork upgrade: Although it is almost impossible to obtain community consensus to change the 21 million upper limit, other adjustments such as fine-tuning of block size or block interval may be considered to optimize the economic model in the post-mining era.
Historical Perspective and Long-term Value Proposition
From a broader historical perspective, the end of Bitcoin mining will be a milestone moment in the history of money:
For the first time, a fully predictable money supply will be achieved: Even gold, its supply will change due to the discovery of new mines or the advancement of mining technology. Bitcoin will be the first form of money in human history with an absolutely fixed and verifiable supply.
Challenge to traditional economic theory: Modern Monetary Theory (MMT) believes that the money supply should adjust with economic growth. Bitcoin’s fixed supply will become an unprecedented economic experiment to test the performance of deflationary money in the real economy.
Intergenerational wealth transfer: The proportion of Bitcoin held by early adopters will be permanently fixed, which may trigger a long-term debate about wealth distribution and the design of Bitcoin as a fair monetary system.
As a manifestation of human time preference: Bitcoin’s fixed supply reflects its creators’ emphasis on long-term time preference, which is in stark contrast to the contemporary culture of instant gratification.
Conclusion: The beginning of a new era for Bitcoin, not the end
The mining of all 21 million Bitcoins is not the end of the Bitcoin story, but the beginning of a new chapter. This event will mark the full transition of Bitcoin from the “mining new coins” phase to the “mature currency network” phase, and its economic model will face a real test.
While there are challenges, particularly around miner incentives and network security, Bitcoin has demonstrated amazing adaptability over the past decade or so. Fixed supply is both one of Bitcoin’s greatest innovations and the core of its long-term value proposition. In a world where currency debasement is the norm, Bitcoin’s absolute scarcity may become its most compelling feature.
Ultimately, whether Bitcoin can thrive in the post-mining era will depend on its actual utility as a store of value and medium of exchange, and the global community’s demand for a non-sovereign, mathematically scarce form of money. Whatever the outcome, the entry of all 21 million Bitcoins into circulation will be a memorable moment in monetary history, marking the first time that humanity has achieved a fully transparent and unchangeable monetary supply policy.
Ultimately, whether Bitcoin can thrive in the post-mining era will depend on its actual utility as a store of value and medium of exchange, and the global community’s demand for a non-sovereign, mathematically scarce form of money. Whatever the outcome, the entry of all 21 million Bitcoins into circulation will be a memorable moment in monetary history, marking the first time that humanity has achieved a fully transparent and unchangeable monetary supply policy
