Recently, the 18 millionth Bitcoin (BTC) was mined. As declared by Statoshi.Info, a recent block brought the 18 millionth coin into existence, leaving three million BTC remaining out of the hard-capped 21 million coin supply.
Alex Adelman, the CEO of Bitcoin rewards platform Lolli, said:
“The pie is shrinking. This [milestone] gives people some simple math to raise awareness about where we’re at in the [bitcoin mining] process.” Alex Adelman
“It’s good for people to see the progress of bitcoin, to look back on everything that has been done and will be done for the next 3 million. … You should pay attention to the next 3 million.” Alex Adelman
However, the milestone may seem irrelevant to those not involved in the cryptocurrency industry, the Bitcoin community has been celebrating this event, filling the Twitter feeds of cryptocurrency investors the world over.
This Friday the 18th million Bitcoin will be mined There are only #3MillionLeft Our mission is to make it easy for everyone to be a part of this once in a species revolution — farbood (@farbood) October 16, 2019
It has been reported that the next 3 million Bitcoins will be progressively slower to mine as a result of block reward halvings which occur every 210,000 blocks (or roughly four years) and reduce new Bitcoin supply by 50 percent. The final Bitcoin is expected to be mined in 2140.
Likewise, Bayerische Landesbank (BayernLB), a Munich-based Financial Institution, has predicted that the block reward halving a key event in Bitcoin’s scarcity narrative, will give Bitcoin to fuel to jet past its previous all-time highs.
It has been said that once there are no more Bitcoins left to mint, miners will rely solely on transaction fees, which are paid by users to transfer coins through the blockchain. This change gives cause for concern to some who view Bitcoin’s block subsidies as integral to Bitcoin’s incentive system.
This could undermine the structure that motivates miners to record validated transactions in the ledger.
Angela Walch, a research fellow at the University College London Centre for Blockchain Technologies, said:
“All of your assumptions about incentives, risk, and value go out the window. Please take the blinders off and stop assuming that everything will still work well once everything goes to a pure transaction-fees system as opposed to blocking.” Angela Walch
Currently, with each block, miners get a subsidy of 12.5 newly created BTC, worth roughly $99,370, plus any additional transaction fees, which normally don’t total more than 1 BTC.
Similarly, Paul Brody, a global innovation leader for Audit Firm Ernst & Young (EY), said that Bitcoin’s limited supply could limit the cryptocurrency’s utility as a global reserve currency.
“If bitcoin were to become a substantial part of the global monetary system, we would need to address [the hard supply cap] because a lot of economists agree deflationary systems are not necessarily the best thing.” Paul Brody
Likewise, Manuel Andersch, a Senior Analyst, explained that due to its characteristics and similarities to gold, Bitcoin’s price might be able to be fairly predicted by a stock-to-flow (new yearly supply over above-ground supply of a commodity) model. The model says that once Bitcoin’s block reward reduction is cut in half next year, the cryptocurrency will have a fair valuation of $90,000 per coin.
Andersch also found that his model fit Bitcoin’s price action to a 95% R2, a statistical metric used to represent the accuracy of a model (100% is perfect, 0% is absolutely inaccurate).
Increasing the Supply Cap
As Bitcoin’s supply cap will likely be enforced by HODlers at all costs, there has been some talk of an eventual supply cap increase.
It has been previously reported by NewsBTC at the Satoshi Roundtable earlier this year, discussion arose regarding the abolishment of the strict 21 million BTC supply limit.
Likewise, Attendee Matt Luongo, the founder of Fold and the product lead at Keep, released a thread on the subject matter after the event, explaining why more than 21 million BTC could make sense eventually.
Luongo explained that while it would be unfair to assume what will happen with Bitcoin’s transaction fee market in the long-term, a waning number of miners could pose a threat to the blockchain.
I was the guy that said we might have to one day raise the Bitcoin supply cap. Fight me. https://t.co/ysqHHdcggf — Matt Luongo (@mhluongo) February 4, 2019
Luongo also explained that such a series of events would be a “huge change in the business model and core economics of the network.”
However, considering the worst-case scenario, Luongo noted that when block rewards become scant, the Bitcoin economy could become “top-heavy”. He stated that as transactions on Bitcoin’s main layer, not the Lightning Network or other layers (Liquid), become few and far between, the chain will be susceptible to block reorganizations, as seen with Ethereum Classic and ZenCash.
Thus, he concluded by saying that a potential solution would be to curb the long-standing supply limit of BTC to “allow some emission for chain security, at the expense of all holders.”
On the other hand, Angela Walch and Paul Brody suggested that Bitcoin’s 21 million supply cap might one day be subject to change.
“We need to acknowledge that the 21 million caps are aspirational. If people decide to change that cap for certain reasons and enough people make that decision, the system will move to it. It’s aspiration, not reality.” Angela Walch
While technically possible, a change to the supply cap would almost certainly be a non-starter for Bitcoin users who cherish its gold-like properties. Indeed, Bitcoin’s code has long been governed by a community with a bias toward retaining the coin’s original features as created by Satoshi Nakamoto, its pseudonymous founder.
However, the Bitcoin community has gone through fierce governance disputes, such as the infamous scaling debates of 2017, which centered on a potential increase to Bitcoin’s block size. The philosophical rift ultimately resulted in the creation of bitcoin cash in August 2017.
Still, a prospective hard fork that would change Bitcoin’s 21-million-coin supply cap is conceivable, if perhaps heretical.
Paul Brody said:
“It’s not a given that bitcoin has to stay at that 21 million hard limits. There is a governance mechanism to permit changes in bitcoin – if the community agrees that would be good.” Paul Brody
Even though Andreas Antonopoulos, the Bitcoin Advocate and Author, stressed that governance drama surrounding Bitcoin’s supply cap is nothing to lose sleep over – especially since Bitcoin’s transition to a purely transaction-fee rewards model will take 120 years.
Antonopoulos also said that from the very launch of Bitcoin in 2009, mining was always “a marginally profitable endeavor” never intended to stay constant.
“[Mining rewards] dynamically adjust based on the network. … It’s a very complex economic environment. It’s not as simple as people think. There are half a dozen variables that determine miner profitability [right now] including the cost of electricity, their access to bandwidth transaction, the block subsidy, the transaction fees at the time, bitcoin price, their local currency exchange rate, the type of equipment and how efficient it is at converting electricity into mining.” Andreas Antonopoulos
As such, Antonopoulos says that the concerns surrounding a transition from a block subsidy to purely transaction-based block rewards are grossly overblown.
Again, Antonopoulos stated:
“Nothing magical happens when block subsidy drops to zero. It’s a very gradual and predictable change that happens over a period of 120 years. It’s already happening and every day [miners] make their decisions.” Andreas Antonopoulos
As the 18 millionth Bitcoin may not be the best reminder of the ongoing reality of a limited supply cap, the next upcoming milestone on Bitcoin’s horizon assuredly will.
Thus, William Mougayar, the Venture Capitalist, said:
“In my opinion, [the 18 million] milestone is not that significant in relation to the next halving which occurs May 2020. … On that date, the block [subsidy] will go from 12.5 BTC to 6.25 BTC.” William Mougayar