What Happens to Bitcoin After All 21 Million Are Mined?

ADAM HAYES
Updated October 07, 2021
Reviewed by
KHADIJA KHARTIT

TABLE OF CONTENTS
Will Bitcoin Ever Reach the 21 Million Cap?
What Happens When All 21 Million Bitcoin Are Mined?
The Bottom Line
Frequently Asked Questions

One of the chief characteristics of Bitcoin (BTCUSD) is its limited supply. Other forms of money, including fiat currencies, can be printed at will by central banks—i.e., they have unlimited supply.

Bitcoin inventor Satoshi Nakamoto capped the number of bitcoin at 21 million, meaning there will only ever be 21 million bitcoins in existence. On average, these bitcoins are introduced to the Bitcoin supply at a fixed rate of one block every 10 minutes. In addition, the number of bitcoins released in each of these aforementioned blocks is reduced by 50% every four years. By August 2021, 18.7 million bitcoins were available, leaving roughly 2.3 million to be mined.1 The supply limitation makes Bitcoin scarce and controls inflation that might arise from an unlimited supply of the cryptocurrency.

As Bitcoin reaches its capped supply, its economics will alter. The incentives for various members in its ecosystem, such as miners and traders, will change. For example, miners may rely less on block rewards and more on transaction fees to earn revenue and profits for their operations. The cryptocurrency's network will also transform, and its participants will be different from the retail traders that populate its current ecosystem.


However, given the cryptocurrency's relatively undeveloped ecosystem, it is difficult to predict with certainty the effect of Bitcoin reaching its capped supply.

KEY TAKEAWAYS

There are only 21 million bitcoins that can be mined in total.

Bitcoin will never reach that cap due to the use of rounding operators in its codebase.
As of Aug, 2021, 18.77 million bitcoins have been mined, which leaves roughly 2.3 million yet to be introduced into circulation.

When Bitcoin reaches its supply cap, block rewards will vanish, and miners will depend on fees from transactions occurring on the cryptocurrency's network for revenue.
Bitcoin's network may evolve from its current unfinished state to becoming a bridge for monetary transactions and trading.

Bitcoin the cryptocurrency will have a defined identity in the financial ecosystem.
Will Bitcoin Ever Reach the 21 Million Cap?

Before delving into the implications of Bitcoin's 21 million cap, it might be interesting to consider the question of whether it will ever reach that figure. Based on the cryptocurrency's current codebase and mining process, some observers say that Bitcoin may fall just shy of the 21 million figure.

To recap, Bitcoin is "mined" by miners who solve cryptographic puzzles to verify and validate a block of transactions occurring in its network. Block rewards, consisting of a set number of bitcoins, are distributed to miners who successfully confirm a transaction block. The rewards are halved every four years.

The rate that bitcoin are produced cuts in half about every four years. Investopedia

When the cryptocurrency was launched, the reward for confirming a block of transactions was 50 bitcoins. In 2012, it was halved to 25 bitcoins, and it went down to 12.5 in 2016. In May 2020, miners stood to earn 6.25 bitcoin for every new block. Block rewards for Bitcoin miners will continue to be halved every four years until the final bitcoin is mined. Current estimates for mining of the final bitcoin put that date somewhere in February 2140.

The Bitcoin mining process provides bitcoin rewards to miners, but the reward size decreases periodically to control the circulation of new tokens.

According to Andreas M. Antonopoulos, author of a book about Bitcoin's workings, the 21 million figure is an "asymptotic cap" on the number of bitcoin in existence.2 In simple words, this means that, while it may reach very close to figure, the cryptocurrency will never reach that limit. This is because block rewards and Bitcoin supply are never expressed in exact terms. Bitcoin's code uses bit-shift operators—arithmetic operators used that round decimal points to the closest smallest integer in certain programming languages. Therefore, a total supply of 6.2589 bitcoins will be rounded out to the closest smallest integer, in this case 6.

While it makes calculations easier, the practice leads to losses in satoshis, Bitcoin's constituent units, during each block confirmation. One bitcoin is equal to 100 million satoshis. According to some, the final bitcoin block will be numbered 6,929,999, and the total supply at that time will be 20,999,999.9769 satoshis. Since bitcoin uses a bit-shift operator system,3 its algorithm will round off that figure to 20,999,999 and leave the cryptocurrency just shy of its 21 million targeted cap.

What Happens When All 21 Million Bitcoin Are Mined?

A consequence of Bitcoin not reaching its planned cap is that it leaves open the possibility that the cryptocurrency's network will remain functional for a long time after 2140. No bitcoins will be issued, but transaction blocks will be confirmed, and fees will become the primary source of revenue. Ultimately, Bitcoin's network may function as a closed economy, in which transaction fees are assessed much like taxes are.

Can the rewards be in satoshis instead of actual bitcoin? Such a practice is unlikely and would require a change in the cryptocurrency's protocol to take effect.

That said, it is difficult to predict the effects of Bitcoin almost reaching the overall supply promised by Satoshi Nakamoto. This is partly because Bitcoin's ecosystem is still undeveloped. The cryptocurrency was originally conceptualized as a medium of exchange but it has found more popularity as a store of value—an investing asset—instead. It is possible that Bitcoin's ecosystem and workings might undergo a transformation, similar to the one that has occured in its identity, between now and 2140.

Although there can only ever be a maximum of 21 million bitcoins, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available bitcoins in circulation could actually be millions less.

For example, there could be a protocol change in the cryptocurrency's blockchain to allow for more than 21 million bitcoin in existence. Remember, Bitcoin is an open source cryptocurrency and can be changed to create hard or soft forks that create new cryptocurrencies or alter its functioning. Some examples of the former are bitcoin cash (BCHUSD), litecoin (LTCUSD), and dogecoin (DOGEUSD), which have made minor modifications to Bitcoin's source code and created new coins that have racked up billions of dollars in market valuations.

Effect on Bitcoin Miners

Block rewards and transaction fees are the most important sources of revenue for miners—the former more so than the latter in the current setup. High prices for bitcoin enable miners to cover operational costs and sustain business profits because they can sell their rewards stash in cryptocurrency markets.

When Bitcoin is close to reaching its limit, the reward amounts may not be enough to cover operational costs at miners, let alone generate profits. If and when the supply limit is reached, Bitcoin rewards are supposed to vanish.

In both instances, transaction fees are expected to pick up the slack. The amount of and mechanism for these fees depends on the state of Bitcoin's network at that point in time—i.e., whether it is being used as a medium of exchange or as a store of value. The former may incur reasonable fees to enable Bitcoin's use in daily transactions, while the latter scenario will have miners conducting fewer and more expensive transactions.

Another possibility being put forward is that of miners forming cartels amongst themselves. They might control supply to set high transaction fees or a fee amount that guarantees them a minimum in profits. Selfish mining is another possibility. In this form of mining, miners collude amongst themselves to hide new blocks and release orphan blocks that are not confirmed by Bitcoin's network. This practice will delay production of the final block in Bitcoin's network and ensure high rewards for the new blocks when they are finally released into the network.

The formation of a Bitcoin miners' cartel is not a far-reaching conclusion. Such groupings already exist in other commodities whose supply is constrained or controlled. For example, oil prices are influenced to a large degree by OPEC's production output. Prices in the diamond industry are also reportedly set by a cartel led by mining giant DeBeers.4

Effect on Bitcoin's Network

The most valuable and useful aspect of Bitcoin is its network. Distributed ledger technology is a technological solution to the time-consuming bookkeeping and accounting that characterizes most financial transactions today.


If Bitcoin becomes popular as a medium of exchange in the future, its transaction numbers will surge. Past precedent has shown that there is a significant chance that the network will slow down. This is because Bitcoin's architecture, which relies on a distributed database to hold copies of massive ledgers, sacrifices speed for accuracy and integrity.


In such a scenario, it is likely that Layer 2 technologies, like the Lightning Network, will become responsible for confirming a majority of transactions on its network. Therefore, the cryptocurrency's actual network itself will be used only to settle large batches of transactions.


A second possibility is that the number of transactions on Bitcoin's network falls. Such a situation is possible when Bitcoin becomes a reserve asset. Trades involving the cryptocurrency will be few. Retail traders and small trading firms, who dominate its current trading ecosystem, will be eliminated and replaced by large institutional players and established trading firms. They will conduct fewer and more expensive trades that will incur high transaction fees from miners.

Effect on Bitcoin the Cryptocurrency

Bitcoin's inventor Satoshi Nakamoto designed the cryptocurrency to function as a medium of exchange for daily transactions. But its network has high transaction fees and slow processing times. Meanwhile, its scarcity and rising prices have become a magnet for speculative investors. Their bets on the cryptocurrency roulette have led to volatile price swings in the asset class deterring serious investors away from it. Regulators have criticized its ecosystem as a Wild West.

By the time that the last bitcoin is mined (or close to being mined), Bitcoin may have a more defined identity that it does currently. Side channels, like the Lightning Network, may have increased its network's transaction processing speed and enabled its use as a medium of exchange. Some countries like El Salvador are betting on such an eventuality and have made the cryptocurrency legal tender.

El Salvador made Bitcoin legal tender on June 9, 2021.5 It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it. The U.S. dollar continues to be El Salvador's primary currency.

In the United States, the latest significant events are the Office of the Comptroller of the Currency (OCC) letter in January 2021 authorizing the use of crypto as a method of payment, PayPal Holdings, Inc.'s (PYPL) introduction of Bitcoin, and Tesla, Inc.'s (TSLA) acceptance of Bitcoin to purchase Tesla cars and solar roofs. Tesla reversed course on accepting Bitcoin in May 2021, citing environmental concerns around the resources required for Bitcoin mining.


The increasing scarcity in its numbers will also have driven up bitcoin's price and the corresponding valuation of cryptocurrency markets. Regulators tend to move quickly when increasing amounts of capital flows into an asset class, and it is likely that crypto markets and Bitcoin will also have come under the regulatory umbrella. That will be a sign for institutional investors to move into the cryptocurrency's ecosystem and stabilize its price swings with massive liquidity.

The Bottom Line

Bitcoin's 21 million supply cap is meant to control inflation that might, otherwise, result from an unlimited supply. But it has inflated the cryptocurrency's prices by making it a scarce commodity.

When Bitcoin reaches the supply cap, it is likely that miners will shift from block rewards to transaction fees as their main source of revenue. Development of side channels, like the Lightning Network, may result in Bitcoin's blockchain restricting itself to confirmation of large batches of transactions or ones that involve movement of significant numbers of bitcoins from one address on its blockchain to another. Bitcoin's identity—as a store of value and a medium of exchange—will also be more clearly defined than it is currently.

But none of these predictions are set in stone. The kinetic pace of developments in Bitcoin's ecosystem means that it is difficult to accurately predict its future. For example, the cryptocurrency's protocol may be changed to accommodate the production of more than 21 million bitcoins. Or, it may fall just shy of reaching 21 million.

Frequently Asked Questions

What is Bitcoin's total supply?

The total supply of bitcoins is capped at 21 million.

What will happen to miner fees when Bitcoin's supply limit is reached?

When Bitcoin supply reaches 21 million, miners will rely on transaction fees rather than block rewards, which will have vanished by then, for revenue.

What will happen to Bitcoin's network when it reaches the supply limit?

When Bitcoin reaches the 21 million supply limit, it is likely that side channels, like the Lightning Network, will do most of the heavy lifting in confirming its transactions. The cryptocurrency's blockchain be responsible for confirming only very large batches of transactions or ones that involve movement of large sums of bitcoin from one address to another.

What happens if Bitcoin supply fails to reach the 21 million cap?

One consequence of Bitcoin not reaching its planned cap is that it leaves open the possibility that the cryptocurrency's network will remain functional for a long time after 2140. In keeping with Bitcoin's economics, rewards for confirming these blocks will be minimal.


ARTICLE SOURCES

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Business Insider India. Nearly 90% of Bitcoin Have Been Mined. Accessed Oct. 7, 2021.


YouTube. Bitcoin Q&A: The 21 Million Supply Cap. Accessed October 7th, 2021.


Amber Data. Why Bitcoin Will Never Reach its 21 Million Supply Cap. Accessed October 7, 2021.


The Economist. The Cartel Isn't Forever. Accessed Oct. 7, 2021.


AP. "El Salvador Makes Bitcoin Legal Tender." Accessed June 11, 2021.

ANARCHO CAPITALI$M
At El Salvador’s Bitcoin Beach, a glimpse of crypto economy
By MARCOS ALEMAN

today

1 of 6



EL ZONTE, El Salvador (AP) — After El Salvador’s congress made the bitcoin legal tender this week, eyes turned to this rural fishing village on the Pacific coast. Known to surfers for its pounding waves, El Zonte has had the cryptocurrency in its economy for the past year.

Some 500 fishing and farming families use bitcoin to buy groceries and pay utilities, something the government envisions for the country at large. Bitcoin already was legal to use in El Salvador but its acceptance was voluntary, so the legislation passed late Tuesday now requires all businesses — except those without the technology — to accept payment in bitcoin.

El Zonte’s mini bitcoin economy 26 miles (43 kilometers) from the capital came about through an anonymous donor who started working through a local nonprofit group in 2019. Supporters of the financial change point to it as a demonstration case for how digital currency could help in a country where 70% of the people don’t have bank accounts.




President Nayib Bukele, who pushed through the bitcoin law, touts it both as a way to help those many Salvadorans without access to traditional banking services and as a path to attract foreigners with bitcoin holdings to invest in El Salvador, which is the first nation to make the cryptocurrency legal tender.

Experts are trying to figure out why Bukele is pushing bitcoin. They say it is unclear how the highly volatile cryptocurrency will be a good option for the unbanked and only time will tell if the new system translates into real investment in El Salvador.

Bitcoin, intended as an alternative to government-backed money, is based largely on complex math, data-scrambling cryptography — thus the term “cryptocurrency” — lots of processing power and a distributed global ledger called the blockchain, which records all transactions. No central bank or other institution has any say in its value, which is set entirely by people trading bitcoin and its value has moved wildly over time.

In El Zonte this week, construction worker Hilario Gálvez walked into Tienda María to buy a soda and snacks to share with his friends. Instead of reaching for his wallet, he paid through an app on his phone.

The store’s namesake, María del Carmen Avilés, said she is now expert in bitcoin transactions.

“When a customer comes I ask him if he’s going to pay with the application or in cash. The majority pay with the application Bitcoin Beach. I look for it on my cell to charge them.”

It doesn’t take more than two minutes.

“It’s easier than paying with bills,” Gálvez said. “I can buy from my house, do the transaction with the application Bitcoin Beach, and I just come to pick up what I need.”

Avilés notes that the volatility of the bitcoin can be a problem.

“People ask me if I recommend bitcoin, I tell them I’ve won, but I’ve also lost,” Avilés said. “When bitcoin hit $60,000, I won and I bought this refrigerated room for the store, but then it went down and I lost.”

Román Martínez was a pioneer in using bitcoin in El Zonte. He said the anonymous U.S. donor heard about community projects through the nonprofit Hope House where he works and began working through another American who lives in El Zonte. Hope House shares a building with Strike, a Chicago-based start-up that has been working with Bukele’s government on the nationwide bitcoin launch.

A request by The Associated Press to interview Strike CEO Jack Mallers was not granted. In an email, the company said, “Strike’s app is meant to empower people in all countries, broaden the financial system to include those who have been excluded, and increase economic opportunity around the world, and that is at the heart of this effort.”

El Salvador has used the U.S. dollar as its official currency since 2001, and Strike said that adopting bitcoin “as legal tender will help reduce its dependence on the decisions of a foreign central bank.”

Martinez said El Zonte residents did not have bank accounts, had no access to credit and were forced to handle all transactions in cash. “Now they are small investors whose lives have been changed by bitcoin,” he said.

Some question just how much can be learned from the Bitcoin Beach experiment.

David Gerard, author of “Attack of the 50 Foot Blockchain,” said El Zonte is an artificial demonstration.

At Bitcoin Beach, he said, “the bitcoins are traded inside Strike. They don’t actually move on the bitcoin blockchain or anything.”

Gerard said it appears to work because the bitcoin donor keeps pumping bitcoin into the village’s system. “That’s not a proof of concept that works. That shows that you can trade this stuff if you’re not trading actual bitcoins and someone massively subsidizes it.”

Adoption had been slow in El Zonte, but took off during the coronavirus pandemic when strict lockdown measures kept most people from leaving home.

“Our donor made three deliveries of $40, converted to bitcoin, for each of the community’s 500 families, and they were trained to use the application and now it’s normal to buy with bitcoin,” Martínez said.

El Zonte even has a Bitcoin ATM, which gives dollars in exchange for bitcoin or takes dollars and gives credit in bitcoin.

Edgar Magaña was in town from San Salvador to convert $50 to bitcoin. He inserted the dollars into the machine and was surprised to see only $47 in bitcoin fractions credited to his account on his phone.

“They took three dollars commission,” Magaña said, adding that he had understood there was no commission. “This is like in the banks.”

To spur national adoption, Bukele said the government would create a $150 million fund to allow people receiving payments in bitcoin to immediately convert them to dollars, reducing the risk of holding the fluctuating digital currency.

Jessica Velis, who runs the El Zonte business where the ATM is located, said some people here are already receiving remittances from abroad in bitcoin.

Salvadorans received some $6 billion in remittances last year from relatives living abroad, mostly in the United States. Bukele has said adopting bitcoin could save on the costs of sending that money home.

Not everyone in El Zonte is sold on the idea.

At Olas Permanentes, one of the town’s most popular restaurants, customers have been able to pay using bitcoin. But when the waitstaff was asked if they use it, they all said no. Some said they didn’t have higher-end cellphones needed to download the app, while others said they had doubts about how it worked.

“They pay me in dollars and in cash,” said one waitress, who declined to give her name.

Walking through town, a woman who only gave her name as Teresita, was asked if she used bitcoin. “Not me, I prefer to have the bills,” she said.

___

Associated Press writer Christopher Sherman in Mexico City contributed to this report.

A worker at Hope House, an organization that sponsors the use of cryptocurrencies in El Zonte beach, makes a purchase at a small store that accepts Bitcoin, in Tamanique, El Salvador, Wednesday, June 9, 2021. El Salvador's Legislative Assembly has approved legislation making the cryptocurrency Bitcoin legal tender in the country, the first nation to do so, just days after President Nayib Bukele made the proposal at a Bitcoin conference. (AP Photo/Salvador Melendez)

Eduardo Magaña, right, uses the first ATM designed to withdraw cash through the cryptocurrency App "Bitcoin Beach" on El Zonte Beach in Tamanique, El Salvador, Wednesday, June 9, 2021. In this beach community, a nongovernmental organization with the financial backing of an anonymous Bitcoin donor has been trying to create a small-scale cryptocurrency economy, and could serve as a showcase for the gains and struggles to introduce a phone-based cryptocurrency as the country embarks on a nationwide experiment after making Bitcoin legal tender this week. (AP Photo/Salvador Melendez)

Santos Hilario Galvez, a Salvadoran who works as a builder at the Hope House, an organization that sponsors the use of cryptocurrencies in El Zonte beach, makes a purchase at a small store that accepts Bitcoin, in Tamanique, El Salvador, Wednesday, June 9, 2021. El Salvador's Legislative Assembly has approved legislation making the cryptocurrency Bitcoin legal tender in the country, the first nation to do so, just days after President Nayib Bukele made the proposal at a Bitcoin conference. (AP Photo/Salvador Melendez) (AP Photo/Salvador Melendez)

Bitcoin uses as much energy as Sweden and is on course to use even more. 

Experts say that's a 'major problem' for its future.

insider@insider.com (Billy Bambrough) 
3/31/2021

The Kizelovskaya State District Power Plant at the Gubakhinsky Coke and Chemical Works. Russian businessman Alexei Kolesnik bought the Kizelovskaya State District Power Plant to create a data center and a bitcoin mining farm in 2018. Maxim Kimerling\TASS via Getty Images

As bitcoin sores, the matrix of computers that run its software now uses as much energy as Sweden.

Rising value incentivizes bitcoin "miners" to compete with each to discover new tokens.

"I don't think the bitcoin industry is doing itself any favors by refusing even to accept that bitcoin's energy use is a problem."

As bitcoin surges to unprecedented value, the sprawling matrix of computers around the world that run its software is now consuming as much energy a year as Sweden, the latest calculations suggest.

The higher the price, the more electricity this network uses. Iran was recently rocked by power outages that were partly blamed on bitcoin. Bill Gates recently warned bitcoin was "not a great climate thing." U.S. Treasury Secretary Janet Yellan has called its energy use "staggering."

Conceived to defy central banks in the fallout of the financial crisis, bitcoin started life so counter-cultural that no one really knows who created it.

It has soared from around $10,000 through most of last year to around $58,000 now, thanks to investors who fear traditional currencies are set to lose value, an influx of traders who speculate on the future price, and Elon Musk who tweets that you can use it to buy Teslas. It is now seriously talked of as a potential new global reserve currency.

But as Wall Street banks roll out bitcoin services, they may find its environmental costs hard to balance with shareholders and customers who are increasingly conscious. Experts tell Insider that bitcoin faces a Catch-22.

Like the cryptocurrency itself, bitcoin's community is decentralized, defiant, and nebulous. No one can simply tell it to heed growing calls to reduce its carbon footprint.

Alex de Vries, a Dutch economist who created the Bitcoin Energy Consumption Index, estimates the electricity used has doubled since 2017 to between 78 terawatt hours (TWh) and 101 TWh a year. More than half of bitcoin miners in China, where most use coal.

 Bitcoin has no physical form. "Mining" refers to its network of computers finding new tokens by having them solve complex calculations.

 Hardware at the SberBit cryptocurrency mining equipment 

facility in Moscow, Russia, in 2017.

Vyacheslav Prokofyev\TASS via Getty Images

New tokens these calculations uncover are a reward to the miners for using their computing power and electricity to secure the network against hacks and record transactions on bitcoin's decentralized ledger, known as the blockchain.

As the price climbs, those running the vast networks of computers dedicated to solving these calculations can sell them and direct more computing power toward the network, creating a cyclical effect as they compete with other miners to find new bitcoin first.

SEE ALSO: Bitcoin mining can be a 'bridge' to a renewable energy future by supporting green projects, a leading North American miner says ROFLMAO

De Vries thinks bitcoin's energy use will continue to climb as the prices rises and miners buy more hardware.

He forecasts the network could soon consume a staggering 200 TWh, as much energy as all data centers globally and equivalent roughly to London.

He said potential investors may be put off by bitcoin's eye-watering energy use, adding, "I think this will be a major problem for bitcoin."

But for bitcoin advocates, the fact it allows people to make transactions semi-anonymously and without third-party approval, outweigh the environmental costs.

Nic Carter, a bitcoin investor and partner at crypto-focused venture capital firm Castle Island Ventures, told Insider its energy use was "not a new debate."

"The costs of the dollar system are harder to comprehend but they are extremely real," he added

.

The more bitcoin surges, the worse the problem becomes

 Alain Pitton/NurPhoto via Getty Images

He said that if investors conscious of environmental impact refused to buy bitcoin "because it consumes energy - like every other utility on the planet - they are just doing themselves and their investors a disservice."

Twitter chief executive Jack Dorsey said late last year that cryptocurrencies "will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally ... Published estimates indicate bitcoin already consumes a significant amount of clean energy."

Bitcoin miners, incentivized to use renewable energy by government subsidies, have sought sustainable ways of fueling their computers.

One German company set up a mining facility under the fjords of Norway, using hydroelectricity to power its machines and the freezing water to cool them.

But estimates of how much bitcoin's overall energy use is green vary hugely.

In a 2019 study, cryptocurrency asset management firm CoinShares' analysis concluded the bitcoin network gets up to 74% of its electricity from renewables. But in a survey by Cambridge University's Judge Business School the same year, only 39% of miners said that their power came from renewables.

Renewables aren't the only way to use less energy.

Ethereum, the second largest cryptocurrency after bitcoin, has a total value of $200 billion compared to bitcoin's $1 trillion market capitalization and soared over the last year. Its energy demands spiked to 30 TWh per year, up from 7 TWh 12 months ago, according to de Vries' calculations.

It sought to cut its energy use by moving to a "proof-of-stake" algorithm, where, instead of miners who create new tokens as a reward for securing the blockchain, "stalkers" hold existing tokens and can commit - or stake - them to the network, generating new tokens and helping to validate transactions.

But De Vries said fixing bitcoin's energy dilemma this way would be impossible without fundamental changes to bitcoin.

Its miners and developers could vote for such a change but fundamental alterations to bitcoin's core software are broadly unpopular.

One proposal to make bitcoin better suited to small payments in 2017 caused such a schism that a group of miners decided to "fork" the blockchain and create a rival cryptocurrency called bitcoin cash.

Frances Coppola, an author on banking, finance, and economics, told Insider bitcoin needed to evolve if it is to solve the problem.

"I don't think the bitcoin industry is doing itself any favors by refusing even to accept that bitcoin's energy use is a problem, let alone do anything about it," she added.

De Vries added that, if traders, miners and advocates cannot address its environmental impact, government action "seems like an inevitable outcome."

Bitcoin may be set up to be distanced from authorities but, as hundreds of thousands dream of following its early investors into the ranks of the world's richest, it is attracting the type of attention governments cannot ignore.

India has proposed fining anyone who trades or owns bitcoin, As U.S. Treasury Secretary Yellan condemned its energy use, she also warned investors it was "extremely inefficient" and "often for illicit finance."

But De Vries added that, whatever happened, bitcoin would likely survive in some form.

He said it would "continue to exist as long as some people think it has value ... It may just not be the same market value as it has today."

Read the original article on Business Insider

0Bit coin

Bitcoin crash erases $36 million in value from El Salvador government's massive crypto investment as national debt grows

Hannah Towey
Fri, May 13, 2022

A store that accepts bitcoins in El Zonte, La Libertad, El Salvador on September 4, 2021

.MARVIN RECINOS/AFP via Getty Images

El Salvador, the first country to make bitcoin legal tender, racked up $36 million in cryptocurrency losses on Thursday.


The popular cryptocurrency plummeted 50% from its all-time high this week.


The government bought an additional 500 coins at $30,744 each on Monday, President Nayib Bukele said.

El Salvador – which became the first country to make bitcoin legal tender in September — has seen the value of its massive cryptocurrency investment plummet by $36 million as bitcoin dropped over 50% from its all-time high on Thursday.

President Nayib Bukele bet big that bullish bitcoin investments could rescue El Salvador's economy from its growing debt-to-GDP ratio. Now, the crypto market's crash is fulfilling critics' warnings against investing treasury funds into volatile digital currencies.

Bukele's administration has spent a total of $103 million on 2,301 bitcoins since September of last year, according to Bloomberg data. As of Thursday afternoon, the coins were valued at around $67 million. El Salvador currently owes an estimated $23.3 billion in national debt.

The International Monetary Fund (IMF) issued multiple warnings to the administration about legalizing bitcoin as an acceptable form of payment for any purchase or debt. In February, Fitch Ratings downgraded El Salvador's default rating from a "B-" to a "CCC," citing financing uncertainty spurred by the law.

"Households and businesses who hold Bitcoin balances and save in Bitcoin could lose wealth through large swings in value," the IMF El Salvador team, led by Alina Carare, warned in February.

"The adoption of Bitcoin as legal tender is fully funded by public money, through a trust fund. If the price of Bitcoin was to plummet, the resources in the trust could be rapidly depleted," IMF continued.

Undeterred by the drop, President Bukele announced "El Salvador just bought the dip!" on Monday. The purchase was the country's largest to-date, adding 500 bitcoins priced at an average of $30,744 each to its holdings.



Bukele's bullish investment in cryptocurrency has led to a mixed reception by the country's citizens, with past bitcoin protests drawing thousands of attendees. A spokesperson for the administration did not immediately respond to Insider's request for comment.

According to a September survey of 1,281 people, most Salvadorans (67.9%) disagree with the government's decision to make bitcoin legal tender. The nation's digital wallet, "Chivo Wallet," has not seen widespread use as the majority of sales continue to be paid in physical currencies, as Insider has previously reported.

El Salvador buys the bitcoin dip, adding 500 coins to its balance sheet

TUE, MAY 10,2022
MacKenzie Sigalos@KENZIESIGALOS

KEY POINTS

El Salvador just added another $15.5 million worth of bitcoin to its balance sheet, as the world’s most popular cryptocurrency continues its sell-off.

In a tweet on Monday, President Nayib Bukele revealed that the country bought the dip, adding another 500 bitcoin to government coffers.

It is El Salvador’s largest coin purchase since it first began adding the digital currency to its balance sheet in Sept. 2021 — the same month it became the first country to adopt bitcoin as legal tender, alongside the U.S. dollar.

President of El Salvador, Nayib Bukele, gestures during his speech at the closing ceremony of the Latin Bitcoin conference (LaBitConf) at Mizata Beach, El Salvador, where he announced “Bitcoin City”, on November 20, 2021.
Marvin Recinos | AFP | Getty Images

El Salvador just added another $15.5 million worth of bitcoin to its balance sheet, as the world’s most popular cryptocurrency continues its sell-off.

In a tweet on Monday, President Nayib Bukele revealed that the country bought the dip, adding another 500 bitcoin to government coffers.

It is El Salvador’s largest coin purchase since it first began adding the digital currency to its balance sheet in Sept. 2021 — the same month it became the first country to adopt bitcoin as legal tender, alongside the U.S. dollar.

Bitcoin is down more than 8% in the last 24 hours, and it’s nearly 55% off its November all-time high.

El Salvador purchased bitcoin at an average price of $30,744, according to the president’s tweet.

The country’s total reserve is up to 2,301 bitcoin, or about $71.7 million at current prices, based on data tracked by Bloomberg.

This is the latest in a string of dip buys over the last nine months, in which President Bukele — who has tethered his political fate to the success of the country’s bitcoin experiment — has doubled down on his bitcoin bet, as the crypto market plummets.

The country’s decision to lean into bitcoin is not without its skeptics — a contingent that has been gaining momentum in recent months.

For months, the International Monetary Fund has bemoaned Bukele’s bitcoin experiment.

In January, the IMF pushed El Salvador to ditch bitcoin as legal tender.

IMF directors “stressed that there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.”

The report, which was published after bilateral talks with El Salvador, went on to “urge” authorities to narrow the scope of its bitcoin law by removing bitcoin’s status as legal money.

The IMF report went on to say that some directors had expressed concern over the risks associated with issuing bitcoin-backed bonds, referring to the president’s plan to raise $1 billion via a “Bitcoin Bond” in partnership with Blockstream, a digital assets infrastructure company. However, that bond offering was put on ice in March, due to “unfavorable market conditions,” according to Finance Minister Alejandro Zelaya.

Part of El Salvador’s nationwide move into bitcoin also involved launching a national virtual wallet called Chivo that offers no-fee transactions and allows for quick cross-border payments. For a country where 70% of citizens do not have access to traditional financial services, Chivo is meant to offer a convenient on-ramp for those who have never been a part of the banking system.

IMF directors agreed that the Chivo e-wallet could facilitate digital means of payment, thereby helping to “boost financial inclusion,” though they emphasized the need for “strict regulation and oversight.” Many Salvadorans have reported cases of identity theft, in which hackers use their national ID number to open a Chivo e-wallet, in order to claim the free $30 worth of bitcoin offered by the government as an incentive.

A report published in April by the U.S. National Bureau of Economic Research also showed that only 20% of those who downloaded the wallet continued to use it after spending the $30 bonus. The research was based upon a “nationally representative survey” involving 1,800 households.

El Salvador has been trying since early 2021 to secure a $1.3 billion loan from the IMF — an effort that appears to have soured over this bitcoin row.

The country will need to figure out some other backstop to shore up its finances. The IMF predicts that under current policies, public debt will rise to 96% of GDP by 2026, putting the country on “an unsustainable path.”

Carbon Heavy Money: How Bitcoin Maybe Accelerating Global Warming

Bitcoin may just prove be an accelerating factor for the current global warming situation.

BY CORY PARKER

PUBLISHED 13 HOURS AGO


Bitcoin Is Viewed As Dirty Currency.


The problem is cryptocurrency mining 'farms', which are usually large spaces housing computers dedicated to mining the coins; sometimes, these farms will have thousands of computers all working simultaneously to increase profitability. This process requires an enormous amount of computing power and thus tends to consume immense amounts of energy. The result of this is that bitcoin-mining operations are constantly chasing cheap electricity. Cheap electricity can be found in China, which now accounts for more than 75% of bitcoin mining around the world. The problem with this is that coal and other fossil fuels are currently a major source of electricity worldwide, with two-thirds of all power plants globally burning fossil fuels for energy.

“Bitcoin alone consumes as much electricity as a medium-sized European country,” says Professor Brian Lucey at Trinity College Dublin. “This is a stunning amount of electricity. It’s a dirty business. It’s a dirty currency.”

RELATED: Bill Gates Talks Synthetic Meat, COVID, & Climate Change In New Reddit AMA

It's More Than Just Energy Consumption

The high turnover of these specialized machines creates a lot of electronic waste, electronic products which have reached the end of their usefulness. ASICs serve no other purpose than to mine cryptocurrencies, so when they can no longer mine them profitably, they cease to serve a purpose. According to a new analysis by economists from the Dutch central bank and MIT, because of the high churn of these machines, a single bitcoin transaction creates the same amount of electronic waste as throwing away two iPhones. There were 253,000 transactions last month.


De Vries and Stoll write in the paper, “We estimate that the whole bitcoin network currently cycles through 30.7 metric kilotons of equipment per year. This number is comparable to the amount of small IT and telecommunication equipment waste produced by a country like the Netherlands.”

Countries Are Starting To Take Notice

In Malaysia, police seized and destroyed more than 1000 bitcoin mining rigs by crushing them with a steamroller after the miners had allegedly stolen almost $2 million worth of electricity to power their machines. The miners were charged with stealing energy.

A lot of Chinese mining operations that have been shuttered are relocating to neighboring Kazakhstan. The move might be short-lived, however, as a new law signed by the president will introduce extra taxes for crypto miners starting in 2022, making the country less attractive for miners.

 

Bitcoin mining producing tonnes of waste

BBC

Published

16 hours ago

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Bitcoin mining produces electronic waste (e-waste) annually comparable to the small IT equipment waste of a place like the Netherlands, research shows.

Miners of the cryptocurrency each year produce 30,700 tonnes of e-waste, Alex de Vries and Christian Stoll estimate.

That averages 272g (9.5oz) per transaction, they say. By comparison, an iPhone 13 weighs 173g (6.1oz).

Miners earn money by creating new Bitcoins, but the computing used consumes large amounts of energy.

They audit Bitcoin transactions in exchange for an opportunity to acquire the digital currency.

Attention has been focused on the electricity this consumes - currently more than the Philippines - and the greenhouse gas pollution caused as a result.

But as the computers used for mining become obsolete, it also generates lots of e-waste.

The researchers estimate Bitcoin mining devices have an average lifespan of only 1.29 years.

As a result, the amount of e-waste produced is comparable to the "small IT and telecommunication equipment" waste of a country like the Netherlands researchers said - a category that includes mobile phones, personal computers, printers, and telephones.

The research is published in the journal Resources, Conservation & Recycling.

Efficiency drive

As electricity is a key cost for Bitcoin miners, they have sought out ever more efficient processors.

That has seen a move to highly specialised chips called Application-specific Integrated Circuits (ASICs).

But ASICs are so specialised that as they become obsolete, they cannot be "repurposed for another task or even another type of cryptocurrency mining algorithm", the researchers write.

But while the chips can't be reused, much of the weight of Bitcoin mining equipment is made up of components such as "metal casings and aluminium heat-sinks" which could be recycled.

Globally just over 17% of all e-waste is recycled. However, the number is probably less in some of the countries in which most miners are based, where in many cases regulations on e-waste are also poor.

Chip shortage

Many industries are struggling with a global chip shortage.

In addition to producing large amounts of e-waste the researchers argue that "rapidly cycling through millions of mining devices may disrupt the global supply chain of various other electronic devices".

They suggest that one solution to the problem of e-waste would be for Bitcoin to change the way transactions are verified, to a different less computing-intensive system.

Why Bitcoin uses more electricity than many countries


Cryptocurrencies have emerged as one of the most captivating, yet head-scratching, investments in the world. They soar in value. They crash. They’ll change the world, their fans claim, by displacing traditional currencies like the dollar, rupee or ruble. Some of them are named after dog memes.

And in the process of simply existing, cryptocurrencies like Bitcoin, one of the most popular, use astonishing amounts of electricity.

We’ll explain how that works in a minute. But first, consider this: The process of creating Bitcoin consumes around 96 terawatt-hours of electricity annually, more than is used by the Philippines, a nation of about 110 million.

That usage, which is close to half-a-percent of all the electricity consumed in the world, has increased about tenfold in just the past five years.

The Bitcoin network uses about the same amount of electricity as Washington state does in a year.

And more than one-third of what residential cooling in the United States uses up.
More than seven times as much electricity as all of Google’s global operations.

So why is it so energy intensive?

For a long time, money has been thought of as something you can hold in your hand — say, a dollar bill.

Currencies like these seem like such a simple, brilliant idea. A government prints some paper and guarantees its value. Then we swap it among ourselves for cars, candy bars and tube socks. We can give it to whomever we want, or even destroy it.
On the internet, things can get more complicated.

Traditional kinds of money, such as those created by the US or other governments, aren’t entirely free to be used any way you wish. Banks, credit-card networks and other middlemen can exercise control over who can use their financial networks and what they can be used for — often for good reason, to prevent money laundering and other nefarious activities. But that could also mean that if you transfer a big amount of money to someone, your bank will report it to the government even if the transfer is completely on the up-and-up.

So a group of freethinkers — or anarchists, depending on whom you ask — started to wonder: What if there was a way to remove controls like these?

In 2008, an unknown person or persons using the name Satoshi Nakamoto published a proposal to create a cashlike electronic payment system that would do exactly that: Cut out the middlemen. That’s the origin of Bitcoin.

Bitcoin users wouldn’t have to trust a third party — a bank, a government or whatever — Nakamoto said, because transactions would be managed by a decentralized network of Bitcoin users. In other words, no single person or entity could control it. All Bitcoin transactions would be openly accounted for in a public ledger that anyone could examine, and new bitcoins would be created as a reward to participants for helping to manage this vast, sprawling, computerized ledger. But the ultimate supply of bitcoins would be limited. The idea was that growing demand over time would give bitcoins their value.

This concept took a while to catch on.

But today, a single bitcoin is worth about $45,000 — although that could vary wildly by the time you read this — and no one can stop you from sending it to whomever you like. (Of course, if people were to be caught buying illegal drugs or orchestrating ransomware attacks, two of the many unsavory uses for which cryptocurrency has proved attractive, they would still be subject to the law of the land.)

However, as it happens, managing a digital currency of that value with no central authority takes a whole lot of computing power.

1. It starts with a transaction.

Let’s say you want to buy something and pay with Bitcoin. The first part is quick and easy: You would open an account with a Bitcoin exchange like Coinbase, which lets you purchase Bitcoin with dollars.

You now have a “digital wallet” with some Bitcoin in it. To spend it, you simply send Bitcoin into the digital wallet of the person you’re buying something from. Easy as that.
But that transaction, or really any exchange of Bitcoin, must first be validated by the Bitcoin network. In the simplest terms, this is the process by which the seller can be assured that the bitcoins he or she is receiving are real.

This gets to the very heart of the whole Bitcoin bookkeeping system: the maintenance of the vast Bitcoin public ledger. And this is where much of the electrical energy gets consumed.

2. A global guessing game begins.

All around the world, companies and individuals known as Bitcoin miners are competing to be the ones to validate transactions and enter them into the public ledger of all Bitcoin transactions. They basically play a guessing game, using powerful, and power-hungry, computers to try to beat out others. Because if they are successful, they’re rewarded with newly created Bitcoin, which of course is worth a lot of money.
This competition for newly created Bitcoin is called “mining.”

You can think of it like a lottery, or a game of dice. An article published by Braiins, a bitcoin mining company, provides a good analogy: Imagine you’re at a casino and everyone playing has a die with 500 sides. (More accurately, it would have billions of billions of sides, but that’s hard to draw.) The winner is the first person to roll a number under 10.

The more computer power you have, the more guesses you can make quickly. So, unlike at the casino, where you have just one die to roll at human speed, you can have many computers making many, many guesses every second.

The Bitcoin network is designed to make the guessing game more and more difficult as more miners participate, further putting a premium on speedy, power-hungry computers. Specifically, it’s designed so that it always takes an average of 10 minutes for someone to win a round. In the dice game analogy, if more people join the game and start winning faster, the game is recalibrated to make it harder. For example: You now have to roll a number under 4, or you have to roll exactly a 1.

That’s why Bitcoin miners now have warehouses packed with powerful computers, racing at top speed to guess big numbers and using tremendous quantities of energy in the process.

3. The winner reaps hundreds of thousands of dollars in new Bitcoin.
The winner of the guessing game validates a standard “block” of Bitcoin transactions, and is rewarded for doing so with 6.25 newly minted bitcoins, each worth about $45,000. So you can see why people might flock into mining.

Why such a complicated and expensive guessing game? That’s because simply recording the transactions in the ledger would be trivially easy. So the challenge is to ensure that only “trustworthy” computers do so.

A bad actor could wreak havoc on the system, stopping legitimate transfers or scamming people with fake Bitcoin transactions. But the way Bitcoin is designed means that a bad actor would need to win the majority of the guessing games to have majority power over the network, which would require a lot of money and a lot of electricity.
In Nakamoto’s system, it would make more economic sense for a hacker to spend the resources on mining Bitcoin and collecting the rewards, rather than on attacking the system itself.

This is how Bitcoin mining turns electricity into security. It’s also why the system wastes energy by design.

Bitcoin’s growing energy appetite

In the early days of Bitcoin, when it was less popular and worth little, anyone with a computer could easily mine at home. Not so much anymore.

Today you need highly specialized machines, a lot of money, a big space and enough cooling power to keep the constantly running hardware from overheating. That’s why mining now happens in giant data centers owned by companies or groups of people.
In fact, operations have consolidated so much that now, only seven mining groups own nearly 80% of all computing power on the network. (The aim behind “pooling” computing power like this is to distribute income more evenly so participants get $10 per day rather than several bitcoins every 10 years, for example.)

Mining happens all over the world, often wherever there’s an abundance of cheap energy. For years, much of the Bitcoin mining has been in China, although recently, the country has started cracking down. Researchers at the University of Cambridge who have been tracking Bitcoin mining said recently that China’s share of global Bitcoin mining had fallen to 46% in April from 75% in late 2019. During the same period, the United States’ share of mining grew to 16% from 4%.

Bitcoin mining means more than just emissions. Hardware piles up, too. Everyone wants the newest, fastest machinery, which causes high turnover and a new e-waste problem. Alex de Vries, a Paris-based economist, estimates that every year and a half or so, the computational power of mining hardware doubles, making older machines obsolete.

 According to his calculations, at the start of 2021, Bitcoin alone was generating more e-waste than many midsize countries.

“Bitcoin miners are completely ignoring this issue, because they don’t have a solution,” said de Vries, who runs Digiconomist, a site that tracks the sustainability of cryptocurrencies. “These machines are just dumped.”

Could it be greener?

What if Bitcoin could be mined using more sources of renewable energy, like wind, solar or hydropower?

It’s tricky to figure out exactly how much of Bitcoin mining is powered by renewables because of the very nature of Bitcoin: a decentralized currency whose miners are largely anonymous.

Globally, estimates of Bitcoin’s use of renewables range from about 40% to almost 75%. But in general, experts say, using renewable energy to power Bitcoin mining means it won’t be available to power a home, a factory or an electric car.

A handful of miners are starting to experiment with harnessing excess natural gas from oil and gas drilling sites, but examples like that are still sparse and difficult to quantify. Also, that practice could eventually spur more drilling. Miners have also claimed to tap the surplus hydropower generated during the rainy season in places like southwest China. But if those miners operate through the dry season, they would primarily be drawing on fossil fuels.

“As far as we can tell, it’s mostly baseload fossil fuels that are still being used, but that varies seasonally, as well as country to country,” said Benjamin A. Jones, an assistant professor in economics at the University of New Mexico, whose research involves the environmental effect of cryptomining. “That’s why you get these wildly different estimates,” he said.

Could the way Bitcoin works be rewritten to use less energy? Some other minor cryptocurrencies have promoted an alternate bookkeeping system, where processing transactions is won not through computational labor but by proving ownership of enough coins. This would be more efficient. But it hasn’t been proved at scale, and isn’t likely to take hold with Bitcoin because, among other reasons, Bitcoin stakeholders have a powerful financial incentive not to change, since they have already invested so much in mining.

Some governments are as wary of Bitcoin as environmentalists are. If they were to limit mining, that could theoretically reduce the energy strain. But remember, this is a network designed to exist without middlemen. Places like China are already creating restrictions around mining, but miners are reportedly moving to coal-rich Kazakhstan and the cheap-but-troubled Texas electric grid.

For the foreseeable future, Bitcoin’s energy consumption is likely to remain volatile for as long as its price does.

Although Bitcoin mining might not involve pickaxes and hard hats, it’s not a purely digital abstraction, either: It is connected to the physical world of fossil fuels, power grids and emissions, and to the climate crisis we’re in today. What was imagined as a forward-thinking digital currency has already had real-world ramifications, and those continue to mount.