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The Year 2140: What Happens When the Bitcoin Block Subsidy Ends?

09 August 2022

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The Year 2140: What Happens When the Bitcoin Block Subsidy Ends?
A Quick Refresher on Mining Revenues / What you need to know: / The Pessimists / The Optimists / The Bottom Line / 

Exploring what will happen when the Bitcoin block subsidy runs out and what happens moving forward.

The block subsidy will run out in 2140. But what happens after that?

Short answer—we don't know.

The long answer is a little more complicated. There are two schools of thought on what will happen once the block subsidy ends, hotly debated by thought leaders in the Bitcoin community.

A Quick Refresher on Mining Revenues

Miners accrue revenue in two ways—block subsidies and transaction fees, which are additional fees attached to each transaction included in a block. Satoshi incorporated transaction fees into the Bitcoin protocol to prevent flooding the network with low-value transactions that clog up the system. Transaction fees incentivize miners to include only legitimate transactions in blocks rather than filling them up with garbage transactions.

While there's no minimum transaction fee, users can attach a fee to incentivize miners to include their transactions in the next block.

When users send bitcoin and attach transaction fees, they send them to the mempool (a portmanteau of memory and pool), which is like a digital waiting room for all unconfirmed transactions.

Miners then select which transactions to include in the next block they mine. The criteria for selection vary from miner to miner, but they will typically choose the transactions with the highest fees. Because when a block is mined, miners get to collect the block subsidy and any transaction fees associated.

What you need to know:

  1. A user sends a transaction with a fee.
  2. Nodes hold it in the mempool until the miner picks it up.
  3. Miners select transactions to include in blocks they mine based on fees.

While the bitcoin block subsidy is an obvious revenue stream for miners, transaction fees as revenue are not always as apparent. Therefore, knowing their function is essential, as they will take center stage once the block subsidy ends.

What Might Happen When the Subsidy Ends?

It depends on who you ask.

No one knows what will happen systemically when the block subsidy ends. Will it fail to transition and die? Probably not. If Bitcoin dies, it won't be from a lack of block subsidy. We know the block subsidy will slowly decrease while trending toward zero, likely giving the market dynamics ample time to adapt. There is a good chance that Bitcoin will successfully transition to a fee-only model and continue chugging along just fine.

The Pessimists

The first school of thought is that mining will become unprofitable, and miners will stop mining. The network would grind to a screeching halt as there wouldn’t be newly added blocks, and transactions would not be able to be confirmed. This camp argues that the only way to keep the network running would be to introduce a new fee structure that would incentivize miners to keep mining even without the block subsidy.

Some suggest that Bitcoin may require changes to consensus, fee structuring, or other protocol changes to make this happen. But given Bitcoin's decentralized nature, it is hard to see how changes could be successful without causing significant rifts in the community, which could spiral so out of control that the network might collapse. As a result, Bitcoin bears don't see a path forward where this transition succeeds and believe that once the block subsidy ends, Bitcoin's model will fail.

The Optimists

The second school of thought sees the above as an unlikely doomsday scenario. They believe that even without the block subsidy, mining will continue to be profitable thanks to the transaction fees. Satoshi themself said, "Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free." Even though the block subsidy will end, transaction fees will still need to be paid for transactions confirmed on the network.

Suppose Bitcoin continues penetration into the global economy and becomes the de facto standard for digital money. In that case, Bitcoin's price will be exponentially higher than today's, and the transaction fees will follow. Bitcoin transaction fees are priced in satoshis per byte, which is exceptionally cheap but would become quite expensive if the price of Bitcoin continues to rise. So even when the block subsidy goes away, miners will still have plenty of incentive to keep mining to collect these fees.

Some quickly point out that no one will want to use the network if transaction fees rise too high. So won't people abandon the base layer then? Not necessarily. While people might not use the base layer for day-to-day transactions, they'll still use it for other things like settlement, large-scale transfers, and institutional transfers, much like Fedwire. So there'll still be a use for the base layer even if most transactions take place on second-layer solutions—like Lightning. With Lightning, Bitcoin scales transaction volume by many orders of magnitude and reduces fees to a fraction of a penny or less. So even if transaction fees on the base layer rise, users will still be able to use Bitcoin just fine by using one of these second-layer solutions.

The Bottom Line

No one knows what will happen systemically when the block subsidy ends. Will it fail to transition and die? Probably not. If Bitcoin dies, it won't be from a lack of block subsidy. We know the block subsidy will slowly decrease while trending toward zero, likely giving the market dynamics ample time to adapt. There is a good chance that Bitcoin will successfully transition to a fee-only model and continue chugging along just fine.

Still, no one knows for sure. Bitcoin is only 13 years old and has withstood myriad hurdles while venturing through uncharted territories. Despite its resilience, it still has a lot of growing up to do, and there is no telling what challenges it may face in the future.

The year 2140 isn't for another 118 years, so there's plenty of time to see how this all plays out. Until then, supporting Bitcoin, building on it, and experimenting with new ideas is the best way to help ensure its success.

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