Bitcoin mining rigs were the Gordian knot that ties the price of Bitcoin while setting the path that the crypto adoption process should follow. Given the history of the Bitcoin halving, you will find that miners had a larger share of sales compared to today and that costs will still fall after the upcoming halving in 2020.
To make matters worse, there are a limited number of bitcoins that can be mined (21 million). This sets a schedule for when the last bitcoin will be mined at 2140.
When a crypto enthusiast intellectualizes all of this information, it can lead to vulnerabilities which, if left untreated, can create a negative ripple in the crypto market.
Let’s face it, a lot of people initially didn’t accept cryptocurrencies because, firstly, it was an unknown financial entity and, secondly, the ease of use was complex. After presenting notable benefits, people became attracted to its technology and tried hard to understand its mechanisms.
Fortunately, the next halving is less than 12 months away and Bitcoin miners are expected to generate less revenue. On the other hand, the crypto community is increasingly concerned about what happens to Bitcoin when the last one is mined.
This information is confusing, especially for people who have just decided to go with cryptocurrency. Fortunately, by the end of this article, you will have a better understanding as you will have a clear view of the future of Bitcoin.
The date that Bitcoin has a limited supply is a fact that doesn’t go down well with miners. The debate about how miners will continue after mining the 21 million Bitcoins has been going on in the crypto room for some time. As Bitcoin reserves run out, miners lose their block rewards and have to resort to other ways to earn Bitcoin.
The question of whether mining will still be a profitable endeavor has led critics to criticize the future of miners. With no more block rewards, miners will have to rely on transaction fees to stay financially alive.
The over-reliance on transaction fees over block rewards will undoubtedly make mining extremely unaffordable and could lead to a decline in miners, possible network centralization by “bitcoin whales” and a complete collapse of the bitcoin network.
Keep in mind that mining Bitcoin is already ridiculously expensive because of the high cost of specialized, powerful machines in addition to electricity. Analysts at JPMorgan Chase & Co. have found that the cost of mining a single bitcoin outweighs the actual value of the bitcoin itself.
And with the next Bitcoin halving event in less than a year, the block rewards will be cut in half (6.25 BTC), resulting in a significant reduction in mining revenues.
Initially, the reward for mining a block was 50 bitcoins, then it dropped to 25 bitcoins in 2012 and again to 12.5 bitcoins in 2019. In 2020, the reward for mining Bitcoin is 6.25.
The overall effect is that transaction fees may be too low to keep the miners afloat and therefore be put out of business, especially if they are small miners.
However, this may not be the case for several well-speculated reasons. First, given the rapid pace of technological advances over the past century, significant advances in mining technology could be made in the years to come.
A dedicated small and affordable mining chip would be invented, greatly reducing the cost of mining and increasing profitability. In addition, mining hardware would be energy efficient, significantly reducing extreme energy costs and increasing sales.
Dedicated mining hardware, such as application specific integrated circuits (ASICs), has already been developed to simplify the mining process, as explained below. In the second possible case, transaction fees could rise to a level sufficient to keep the miners financially alive.
With the depletion of Bitcoin reserves, the supply will decrease as demand increases. Bitcoin will see a significant increase in value, and the transaction cost may just be enough for miners to survive.
The current technology used in Bitcoin mining is ASIC (Application Specific Integrated Circuit), which evolved from GPUs (Graphics Processor) and later from FPGAs (Field-Programmable Gate Array). ASICs are specially designed for mining Bitcoin and are very effective.
Bitcoin mining is a competitive activity, the difficulty of which increases over time. Mining nodes compete with each other to be the first to complete a block transaction and add it to the growing block. You therefore need dedicated Bitcoin mining hardware, ASICs, to stay one step ahead of the competition.
For miners, ASICs mean a significant increase in mining revenues as they can mine BTC at a higher hash rate than CPUs, GPUs, and FPGAs. A good piece of software that handles ASIC management before its competitors is minerstat’s ASIC Hub.
Currently, almost 17.3 million Bitcoin have been mined, which equates to a volume of USD 20.14 billion and a market capitalization of USD 173.54 billion. This means that nearly 3.7 million BTC have yet to be mined before the 21 million BTC supply is reached.
The actual bitcoin in circulation is well below the 17.3 million mark, which can be attributed to nearly 4 million BTC that is permanently lost due to the loss of private keys or the death of owners.
The last bitcoin is expected to be mined in 2140 with the block reward would be less than 1 satoshi. The question of the BTC price is of great concern to most miners. Will the price of Bitcoin go up or down?
To answer this question effectively, we should dig deep into the Bitcoin evolution that SegWit and the lighting network are involved in.
SegWit (Segregated Witness) refers to a protocol upgrade that increases the block size limit for a blockchain by removing signature data from Bitcoin transactions. SegWit code was released in 2015 but implemented on Bitcoin in August 2017.
The main function of SegWit is to separate non-signature data from signature data for each transaction, thus reducing the transaction sizes stored in a block. SegWit also eliminates the malleability of transactions on the Bitcoin network by removing signatures from transaction data, paving the way for integration of lighting network integration.
The lighting network refers to a “Layer 2” payment protocol that runs on the Bitcoin blockchain. The lighting network adds another layer to the Bitcoin blockchain so that users can create payment channels between two parties connected by the additional layer.
The lightning network enables fast transactions between the participating nodes. SegWit, together with the Lighting Network, fixes Bitcoin’s scalability problems and enables the platform to process millions of transactions per second. Prior to the implementation of the SegWit and Lighting network, the 1MB block size protocol limited Bitcoin transactions to 7 per second, which severely limited Bitcoin’s potential growth into an efficient, widely used payment system.
As mentioned earlier, the implementation of the SegWit and lighting network eliminates scalability issues on the Bitcoin platform, ensures smooth and fast transactions, and greatly improves market value. However, this doesn’t look promising for bitcoin miners, especially after 21 million bitcoins have been mined.
The depletion of Bitcoin reserves means miners are earning solely through transaction fees rather than block rewards. And with full integration of the lighting network, far fewer transactions could be recorded on the platform on a daily basis, which would result in a significant drop in miners’ revenues. With a significant drop in sales, miners would certainly not be willing to sell Bitcoin at a lower price (loss) and therefore the price of BTC will go up.
With this development, however, the price of Bitcoin has continuously decreased. Since the start of 2018 and early in 2019, the price of Bitcoin has fallen from a high of nearly $ 20,000 to around $ 4,000, an 80% decline and an all-time low.
For miners, there are Bitcoin prices that determine whether they will make a profit: all-in ROI breakeven levels and cash cost breakeven levels. Once these two factors are negative, it no longer makes sense to mine Bitcoin as it now represents a total loss.
Currently, block rewards represent new bitcoins and are halved every four years until 21 million bitcoins have been mined by 2140. The falling profit margin is due to either the development of bitcoin, the halving of events, or the ultimate depletion of bitcoin reserves, a challenge for miners unsure of the future.
Transaction fees are the only means by which miners can remain financially relevant in the mining industry. Whether these transaction fees will be valuable enough to encourage miners to continue mining is inevitably uncertain as the coin has two sides.
The advancement of the Bitcoin platform, including protocols like SegWit and Lightning Network, could lead to a reduction in daily recorded transactions and, consequently, a reduction in transaction fees. With bitcoin reserves depleted, the demand for bitcoin could get incredibly higher than supply, resulting in a ridiculously high market price as well as a higher transaction fee to promote mining.
However, in more than 100 years until the last bitcoin is mined, a lot could happen in between to motivate the miners to keep the network going. Who knows, Satoshi Nakamoto might even decide to change the consensus on Bitcoin to keep the network alive.