Bitcoin (BTC) still stands as the most dominant cryptocurrency of all time since its conception in 2009. After its more than a decade of existence in the finance and technology space and crypto market, a lot of individuals and institutions have begun to explore bitcoin’s highly innovative and ingenious functions that can be used for everyday living.
This digital asset is often compared to the leading commodity, which is gold, as both have a number of similarities in terms of features. Say, for example, both assets have a monetary feature and are used to store value. Wall Street even considers the two as “alternative investments.” While both run in different processes, both BTC and gold can be verified easily. Among the most notable similarities of these assets is that they have a limited supply and are acquired through a process called mining.
A quick look at bitcoin mining
While gold and other precious metals are obtained through hard rock mining, which also has various steps and processes, bitcoin, on the other hand, is generated through digital mining. This process is done by individuals called bitcoin miners who secure the entire network and process transactions using high-powered equipment and software specially designed to run the mining procedures.
While miners of gold and other valuable metals break rocks like quartz in search of these precious stones, bitcoin miners crack very complex mathematical equations to get rewards in bitcoin. Unlike gold that is hidden in hard and sturdy materials, bitcoin lies hidden inside data blocks, which are mined using a unique algorithm developed by Satoshi Nakamoto, its pseudonymous creator.
Bitcoin’s fixed supply
Aside from the similarity in the acquisition process, gold and BTC are also considered scarce assets because of having a limited supply. While gold has an unidentified number of tons as a limit, there are only 21 million bitcoins that can be mined and used. But some might ask, “Why is bitcoin capped at 21 million?” Some articles say that Nakamoto intended the unit prices of BTC to “eventually align with traditional fiat currencies.” Setting a limit also gives bitcoin to have anti-inflationary properties.
As of the time of writing, bitcoin sells at over 8,600 USD and has a market capitalization of 158 billion USD. As mentioned earlier, bitcoin’s maximum supply is 21,000,000 BTC. This supply limit is also a factor for this digital asset’s highly fluctuating price. Currently, bitcoin’s circulating supply is 18,239,300 BTC—just over 2,700,000 BTC before it reaches its maximum number of supply. With that, some might wonder what happens when bitcoin reaches 21 million.
After 21 million bitcoins are mined
This might be a thrilling event for all the bitcoin aficionados in the crypto sphere. After all 21 million bitcoins have been mined, will there be no more new BTCs to be generated in the network, or will it be the other way around?
Once miners have generated all coins, there will be no more BTC available for mining. Having additional supply will only be possible if bitcoin’s protocol is altered and allows a more abundant supply. Otherwise, the maximum cap will remain at 21 million bitcoins.
With bitcoin’s supply nearing its limit, what are the possible effects that it can cause to users and the market? Here are some notable possibilities and implications of reaching bitcoin’s supply cap.
Impact on miners
The process of mining bitcoin allows miners to gain rewards for every successful block verified in the network. There are two types of rewards that miners get from mining—a portion of BTC for every confirmed block and incentives that come from transaction fees, which are paid to the miners in exchange for their efforts in processing and verifying each transaction. Higher fees allow miners to gain higher incentives. This is also their basis for prioritizing a transaction in the network. The higher the transaction fee you pay, the faster it is for your transaction to be included in a block.
When all bitcoin has been mined, the miners will no longer receive block rewards since there are no more coins to be generated. They will only earn from the transaction fees to be collected from every confirmed transaction. Miners can continue securing the network since they will still earn from the said fees. However, it is not sure if these fees will be enough for miners to provide sufficient resources for them.
Impact on bitcoin mining and its network
Bitcoin’s price increase also implies an increase in miner’s transaction fees. While this might be considered a piece of good news for bitcoin miners, there is no assurance that the cost of the mining process will remain high in the years to come. No one can tell the future of bitcoin’s technology and how it will work in the years to come.
If the mining process further develops and improves to the point where it is easy and cheap, then this process can also be turned into another business. On the other hand, bitcoin mining is a process that is considered by a lot of jurisdictions to have an adverse effect on the environment due to its high energy consumption level. If bitcoin mining’s energy efficiency improves in the future, miners can consider securing the network and stay in business.
Impact on market price and investment
As we have previously mentioned, there is only about 2.7 million BTC left for mining. When all these have been generated, bitcoin’s supply will be scarce, which would eventually lead to an increase in price.
For investors, this will be great news since bitcoin is a highly volatile asset—with extreme price gains and dramatic falls. This will be an excellent opportunity for aspiring investors to enter the market and try out investing.
When will bitcoin reach 21 million?
Two, three, our four years from now? No one can surely tell when bitcoin will reach its maximum limit. However, according to crypto whizzes, if bitcoin is still used as a currency and still serves the functions similar to fiat money, there is a possibility that it will be highly stabilized.
Being the most popular and leading virtual asset over thousands of others, BTC will be remembered as the asset that cannot be dethroned—not only in terms of market capitalization and price but also for its excellent and worthwhile engagement in the improvement of today’s state of the financial system worldwide.