When all 21 million BTC are mined, what will happen to the Bitcoin mining ecosystem and network?

As we all know, the Bitcoin blockchain was initially designed with a controlled supply principle, with a total upper limit of 21 million coins. This means that only a fixed number of new Bitcoins can be mined each year, and once all mining is completed (which should happen around 2140), no new Bitcoins will enter circulation.

While the Bitcoin network will largely function the same as it does now even once all Bitcoins are mined, there are key differences for miners.

When will the last Bitcoin be mined?

To know when the last Bitcoin will be generated, we need to first understand how the Bitcoin network works.

Bitcoin is designed so that approximately every ten minutes, Bitcoin miners generate a new block. Miners who successfully solve a cryptographic puzzle can add the newly discovered block to the blockchain.

This block contains transactions that were previously waiting for confirmation in the Bitcoin storage pool. Miners usually choose to package them based on the transaction fees provided by these pending transactions.

In return for packaging blocks, miners will receive a fixed number of Bitcoin block rewards. When Bitcoin was first created, the block reward was 50 BTC, but Bitcoin will be halved every 210,000 new blocks. This is simply called "Bitcoin halving", which means that the block reward is halved. This happens approximately every four years, and the block reward is reduced to 25 BTC, 12.5 BTC, 6.25 BTC, and so on. So far, Bitcoin has completed three "halvings", the most recent of which occurred on May 11, 2020, reducing the block reward to 6.25 BTC.

However, Bitcoin miners will continue to earn block rewards until the last 21 million Bitcoin is mined, after which no new Bitcoin will enter circulation. Currently, more than 18.5 million BTC have been produced, which is equivalent to 88.3% of the maximum supply being mined in just ten years. However, due to the gradual reduction of block rewards every four years under the Bitcoin halving, it is estimated that it will take another 120 years before the last Bitcoin is mined.

What will miners do when all the bitcoins are mined?

Once all 21 million bitcoins are mined, bitcoin miners will still be able to participate in the block production process but will not be rewarded in the form of bitcoin block rewards. However, this does not mean that they will not receive any rewards afterwards.

In addition to block rewards, Bitcoin miners also receive all transaction fees included in each newly generated block. Currently, transaction fees only account for a small part of miners' income, as miners currently generate about 900 BTC (about $8.5 million) per day from mining, while transaction fees can earn 30 to 50 BTC (285,000 to $475,000) per day. This means that transaction fees currently only account for 3.3% of miners' income, but by 2140, transaction fees will surge to 100%.

(OKEx Intelligence Bureau Note: As block rewards decrease, miners’ incentives decrease, while the number of network transactions increases. In the case of network congestion, only by increasing transaction fees can miners be willing to confirm transactions and package blocks. Therefore, the proportion of transaction fees in miners’ income will become higher and higher.)

Simon Kim, CEO of venture capital fund #Hashed, said the absence of block rewards will not weaken miners' motivation. "Even after the block reward stops, some changes in the Bitcoin ecosystem and Bitcoin's position as the main currency in the virtual world may lead to significant changes in miner adoption," Kim told Decrypt.

“Changes in the Bitcoin ecosystem could drive significant changes in miner adoption even after block rewards cease.”

—Simon King

Transaction fees peaked in 2017

Indeed, a shift to a reward based solely on transaction fees would almost certainly weaken the Bitcoin mining network to a significant degree, as only a few Bitcoin miners would be able to profitably mine Bitcoin if transaction fees accounted for only 3.3% of the block reward. However, if network usage surged, the challenge of block size could increase dramatically, causing network congestion, which could lead to an increase in transaction fee rewards for miners, similar to what happened during Bitcoin's 2017 bull run.

In December 2017, when the price of Bitcoin peaked, the total transaction fees paid on the network soared to 1,495 BTC per day, when Bitcoin was worth $14,000. As a result, Bitcoin miners earned a total of $21 million in transaction fees that day, which is more than miners currently earn from block rewards. And situations like the 2017 bull run are very likely to happen again in the future.

As the price of Bitcoin soared in October 2020, transaction fees increased about ninefold in two weeks, reaching a peak of around $14.

There is another possibility that Bitcoin's reward mechanism may change at some point before the last Bitcoin is mined. Luka Bo?kin, chief marketing officer of crypto trading platform NewsCrypto, believes that as the number of BTC produced through mining decreases, Bitcoin's protocol will undergo "significant changes." He told Decrypt: "This may eventually include a move to a more environmentally friendly consensus mechanism, such as PoS (Proof of Stake) or another successor to Proof of Work."