Even though we like to take a look at all the new projects going on in the cryptocurrency world, sometimes it’s good to get back to what started it all: Bitcoin. Bitcoin is certainly the most well-known cryptocurrency and the first crypto asset that really started the boom we have today. But with us approaching the maximum number of bitcoins out there, what does that mean? Let’s take a look at things and explain it simply without all the technical jargon.
How a Bitcoin is Created
Most of us have heard of “mining” before in the crypto space. Whether you hear about people running mining machines (i.e. “rigs”) at home, or about the “mining difficulty” increasing, most of us know that it plays an important role for Bitcoin.
Bitcoin relies on a consensus model called “Proof-of-Work” (PoW). In PoW, “miners” are those helping to validate all of the transactions going on in the network. You can think of it as a big group of volunteers keeping track of all the financial transactions going on within a city. This group of volunteers checks the math, validates that the transactions occurred, and makes sure everything is correct. That’s essentially what’s going on with Bitcoin miners.
These mining operations are actually solving incredibly difficult math problems to validate all of the transactions going on in the network. This isn’t the type of thing you can sit down with a pencil and paper and work out long-hand. Mining requires a significant amount of processing power (especially nowadays).
Why do People Volunteer?
Yeah, it’s nice to think of all the good deeds people do everyday, but that’s not really why these miners are “volunteering” to keep up Bitcoin’s public ledger.
The miners who are spending time and money to keep up the network actually get rewarded for what they do. Every time a “block” (specified group of transactions) is solved, there is something called a “block reward” for the miners.
At the time of writing, the current block reward for miners is 12.5 BTC. After a miner (or group of miners, rather) completes a block, the miner(s) will receive 12.5 BTC. With today’s current market value of $9,436, that equates to roughly $118,000 for each block. Wow. That’s a nice little reward, isn’t it?
“What do you Mean There are Only 20% Left?”
Right, so we know that miners get a nice reward after blocks, but what about Bitcoin? Why are there only “20%” of them left?
Unlike fiat currency that can be printed on demand, Bitcoin has a finite supply. An easy way to think about this is like gold and paper money (fiat). Governments can print more fiat money when they’d like, but something like gold (or another precious metal) has a natural finite supply. Though it would be nice to make real gold with a 3D printer, we can’t make any in our garage.
Bitcoin is the same way. When Nakamoto released the whitepaper for the cryptocurrency, it was established from the beginning that only 21,000,000 bitcoins would ever exist. That number has remained the same, though the amount in circulation changes. As miners continue working, more BTC is brought into circulation.
The amount of BTC miners get as a reward decreases in size by 50% every 210,000 blocks. This event is called “halving” and means that in a little over 2 years, the block reward will drop from 12.5 BTC (what it is right now) to 6.25 BTC. You can keep up with the status of the next “halving” here if you’re interested.
Okay, But the “20%” Number?
Well, since we know that there will only ever be 21,000,000 bitcoins total, we can see where we’re at depending on how many are in circulation. At the current stage, there are roughly 17,000,000 bitcoins in circulation, meaning that there are only 4,000,000 bitcoins left!
Many estimates in the industry think that the last bitcoin will be mined in 2140, based on our current progress.
Does the Whole System Shut Down After That?
Not quite. Once the last of the 21,000,000 bitcoins has been mined, it is true that there cannot be any more bitcoins created. However, block rewards in the form of BTC creation are not the only way to keep the network afloat.
On top of block rewards for miners, the transaction fees also go to those mining. After all of the bitcoins have been mined, 21,000,000 will be in circulation and no more will remain to be “mined,” but “miners” will still receive payment (albeit much smaller). So don’t worry, even in 2140, the entire Bitcoin system is not going to collapse simply because there are no more bitcoins to mine; it’s just going to change.
tl;dr – No, the entire Bitcoin system as we know it is not going to collapse and make BTC worth nothing