Part I: The Bitcoin Finitude
Here’s the first of a three-part article on bitcoin mining that deals with its finitude
When Satoshi Nakamoto – the pseudonymous creator(s) of Bitcoins (BTC) – designed the cryptocurrency back in 2009, the hard limit on the total number of minable bitcoins in the world was capped at a little under 21 million. This was done, of course, because bitcoin was designed as a digital asset meant to mimic digital gold – and much like gold in the physical world, there was to exist only a finite supply.
Currently, there exists a total of about 2.1 million bitcoins in the world yet to be mined, with about 19 million having already been issued. These numbers change approximately every 10 minutes – the average time taken for newer blocks to be mined and added to the chain. A new bitcoin is mined every 1.6 minutes on average. Roughly, about 900 bitcoins and 144 blocks are mined daily.
Mining is an integral part of the cryptocurrency protocol. Bitcoin mining, i.e. the authority to add new blocks to the chain, refers to the process of accruing ‘proof of work’ – “verifying and approving Bitcoin transactions through solving complex mathematical problems using high-performance mining computers…In exchange for finding the correct answer, they earn both transaction fees and a mining reward.”
The number of bitcoins mined per block, i.e. the bitcoin reward, is halved every 210,000 blocks, or about once every four years through a process called Bitcoin halving. Back in 2009, the reward for mining a block was 50 BTC. Since then, the reward has been halved four times – most recently in May 2020 – and currently stands at 6.25 BTC per block.
2140 – the year of the last Bitcoin
It is estimated that the last bitcoin will be generated around the year 2140. Yes, there are only about 2 million left to be mined currently and this estimate doesn’t fit the math outlined above, but there’s a solid reason for it: bit-shift operators.
A bit-shift operator is an arithmetic operator that sounds decimal points down to their nearest smallest integer. Such rounding may occur when block rewards for mining are halved for new rewards to be calculated. The reward can be expressed in the form of satoshis – the smallest unit of measurement of the BTC network, where one satoshi is equal to one-millionth of a bitcoin, or 0.00000001 BTC.
Adam Hayes from Investopedia writes: “The Bitcoin blockchain, when tasked with splitting a satoshi in half to calculate a new reward amount, is programmed — using bit-shift operators — to round down to the nearest whole integer. This systematic rounding down of Bitcoin block rewards, in fractions of satoshis, is why the total number of bitcoins issued is likely to fall slightly short of 21 million.” Thus, with newer bitcoins being minted set to decrease by half every (approximately) four years, the final bitcoin is not set to be mined until 2140.
Additionally, although a maximum 21 million bitcoins can be mined and thus be in circulation, the quantity of circulating bitcoins remains significantly lower. An estimate puts approximately 4 million bitcoins – about 20% – to have been lost forever, either from their owners losing their private keys, misplacing their hardware wallets or passing away without sharing wallet details etc.
After all 21 million bitcoins have been mined, no new bitcoin will be issued. Transactions on the bitcoin blockchain will continue to be pooled into blocks and processed, but now miners will be rewarded only with transaction fees instead of a bitcoin reward.
[Continue reading in Part II to find out more on the math and the rewards of Bitcoin mining]