If you’re thinking about investing in bitcoin, it’s worth thinking about what the endgame for the world’s most popular cryptocurrency looks like.
Despite bitcoin being a purely digital asset, there is only ever going to be a set amount of them in circulation.
At the time of writing, around 18.8 million bitcoins are in circulation. However, that figure includes bitcoins that have been lost or are otherwise inaccessible.
The bitcoin network uses a proof-of-work system. Under this system, the blockchain rewards those who do the work involved with maintaining it.
Bitcoin mining isn’t just an activity that introduces new bitcoins into the system, it’s fundamental to how the network processes payments.
Bitcoin miners are competing to be the one who completes a complex mathematical problem and earns the right to place the next block in the chain. If they succeed, they are rewarded with a newly minted bitcoin for their work.
Eventually, that’s going to change. If everything goes to plan, the 21 millionth bitcoin will be the last.
However, Byron Goldberg, Luno’s country manager for Australia, told InvestorDaily sister brand nestegg that this likely won’t occur within our lifetimes.
He predicted that the final bitcoin likely won’t be mined until around 2140.
While that date is quite far off, and doesn’t account for things like potential technological advances that might make mining easier or faster, Mr Goldberg said that many investors may be wondering about the long-term future of the cryptocurrency following this date.
“Once the circulating supply reaches its cap of 21 million, bitcoin miners will no longer receive block rewards (rewards for processing transactions). Instead, they will be rewarded with transaction fees only,” he explained.
Assuming that there will be no major changes to the bitcoin protocol between now and then, this will also be the point at which bitcoin will shift from being an inflationary cryptocurrency to a deflationary one.
When this happens, Mr Goldberg said that the shrinking quantity of bitcoin will likely begin to squeeze demand and push prices even higher.
“Once all bitcoins are mined, the asset will likely become somewhat deflationary over time, given the maximum supply of 21 million and the fact that many people will either lose their bitcoin or inevitably pass away, thus 21 million becomes a theoretical maximum and the supply actually decreases,” he said.