How Bitcoin Miners Make Money When All the Bitcoin Has Been Mined?
When all the world’s bitcoin has been mined, what will bitcoin’s largest miners do? Will mining bitcoin still be profitable at the end of bitcoin’s total supply?
You may have heard that the last bitcoin is scheduled to be mined in 2140. That’s true. Bitcoin’s emission rate – the block reward – is cut in half every four years. It was originally 50 BTC in the early days of the network. Today, it sits at 12.5 BTC. Eventually, we’ll reach a point where most of the world’s bitcoin has been mined and few bitcoins are emitted via block rewards.
Some claim we don’t have to worry about this issue until 2140 – but that’s not true. Yes, the very last bitcoin is scheduled to be mined in the year 2140. However, by the year 2040 – just twenty years from now – we will have mined 99.8% of bitcoin’s total supply.
What happens in twenty years when Bitcoin Miners no longer receive a block reward? Will mining still be profitable? Will any bitcoin miners exist? Will it be profitable to mine bitcoin? Will the bitcoin network succeed when block rewards no longer exist?
It’s a complicated question.
Alex Hardy (@CantHardyWait) first posed the question earlier today on Twitter, asking software engineer and Bitcoin Advisory head Pierre Rochard about his thoughts on the subject.
it's the value : hashrate ratio that matters, I think total fee revenue will slowly trend up in btc terms over the coming decades. Not worried about it
— Pierre Rochard (@pierre_rochard) August 28, 2018
Alex Hardy expressed concern about what happens in 2040:
“If ‘hyperbitcoinization' hasn't occurred by 2040 (when 99.8% of Bitcoin supply has been mined), then isn't the viability of the project in serious peril? I.e. sole reliance on fees alone is dicey? And this really becomes a problem kinda soon?”
In response, Rochard argues that it’s not about the number of bitcoins that are released via emission. Instead, it’s more important to look at the ratio of value to hashrate:
“it's the value : hashrate ratio that matters, I think total fee revenue will slowly trend up in btc terms over the coming decades. Not worried about it”
Today, transaction fees make up a comparatively small amount of miner revenue. Bitcoin Miners get most of their revenue from block rewards. However, transaction fees are still a crucial part of the bitcoin network. When you successfully mine a block, you get all the transaction fees in that block. Even when block rewards get halved and halved again, miners will still make money from transaction fees.
The bitcoin network was designed to solve this problem from the very beginning.
Bitcoin Mining Revenues Could Trend To About 1% Of Circulating Supply Value Per Year
It might seem overly ambitious to believe that bitcoin transaction fees will eventually be comparable to block rewards. However, we’ve already seen this action take place over the last few years.
In response to the above Twitter thread, economist and bitcoin investor Tuur Demeester described how bitcoin mining revenues could possibly trend to about 1% of circulating supply value per year.
This isn’t a fantastical notion: Demeester published a chart packing up that idea. The chart shows bitcoin’s transaction fees slowly catching up to the value of block rewards.
One line shows the revenue from transaction fees. This line started low but has trended upward over time. The other line shows the revenues from newly minted coins. This line started high but has trended downward over time.
“The concept of allowing miners to mint new coins (supply increase now 4%/yr, to drop steeply after 2020) was created as a way to distribute new coins and also as financial incentive to keep the network secure. Over time, mining revenues will increase come from transaction fees, currently at 0.2 basis points/day or 0.7% of the value of bitcoin’s money supply per year.”
To make a long story short, total revenue from fees is expected to rise over time due to market forces as bitcoin block reward revenue decreases. The bitcoin network was designed to accommodate this from the ground up. Bitcoin is working as intended, and that means we aren’t expected to have a crisis in 2040 or 2140 – but of course, nothing is guaranteed.