How many Bitcoins have been mined?
In April 2018, the 17-millionth Bitcoin was mined. The milestone was significant because the cryptocurrency was only created in 2009, when its mysterious creator, known only by the pseudonym Satoshi Nakamoto, published the white paper establishing it.
The total supply of Bitcoins is capped at 21 million, which means that it has taken less than 10 years to mine 80 per cent of all the Bitcoins that will ever exist. At the time of writing, roughly 50,000 new Bitcoins are being mined every month.
To the miners, the spoils
However, Satoshi designed the system so that it would get harder to mine Bitcoins as the number in circulation increased. New Bitcoins are created by ‘mining’ – the process by which transactions on the network are also verified. Since cryptocurrencies are decentralised, there is no central bank or other third party to verify that a transaction is legitimate. Instead, this process has to be carried out by the network.
That is done by computers that work on generating a cryptographic hash – a kind of digital fingerprint for the data in the block. Carrying that out is time-consuming and expensive, both in terms of buying the computer equipment necessary and paying for the power needed to run it. Therefore, to incentivise people to verify transactions, they are paid a small fee for each transaction in the block and given an amount of newly-generated Bitcoins.
Every four years the reward for successfully verifying a block will decrease. This gradual increase in the difficulty of producing new Bitcoins means that the last Bitcoin probably won’t be mined until 2140.
Why supply is limited
Not much is known about why Satoshi set Bitcoin up the way they did; the person behind the identity has never come forward to explain themselves. That means that the 21 million Bitcoin limit might be a significant number for some reason; it might be mathematically logical in a way that is not yet clear, or it could be an arbitrary figure that appealed to Satoshi for some reason. Similarly, it’s not clear whether there is a reason why intervals of four years were chosen for the reduction in Bitcoin rewards.
However, it is possible to understand why Satoshi wanted to limit supply of the cryptocurrency. The idea is that Bitcoins would behave like gold, which is a finite resource and one that gets more time-consuming and expensive to find and get out of the ground. Like the people who dig up gold, those who ‘create’ new Bitcoins are called ‘miners’.
The significance of scarcity is that central bodies, such as banks, cannot manipulate the economy simply by creating more money. Some currencies, such as the US dollar, were once tied to the ‘gold standard’. That is, the value of currency was directly linked to a specific price for gold. If the government bought gold at, for example, $500 per ounce, then one dollar was worth 1/500th of an ounce of gold.
Countries eventually abandoned the gold standard for ‘fiat’ currency, so named because its value is controlled by the decree of governments, rather than the value of a scarce commodity. Thus, a central bank can influence the economy by printing more money, using it to buy bonds and thus put more funds into the system. This is a process known as ‘quantitative easing’.
There are still economists who would like to see a return to the gold standard, while others argue for the flexibility that a fiat currency provides for bankers. The controlled supply of Bitcoin removes this option from bankers.
When supplies run out
It is likely to take more than a century before the last Bitcoin is mined. After that, transaction fees alone will have to suffice as an incentive for miners to continue verifying blocks of transactions. It is not clear whether that incentive will be sufficient, though it’s worth remembering that the difficulty of mining can be manipulated so that mining is a less onerous task. The difficulty of Bitcoin mining is intended to ensure that a new block of transactions is verified roughly every 10 minutes.
Once mining is completed there won’t actually be 21 million Bitcoins in circulation. First, there are plenty of Bitcoins that owners are treating as investments and not spending. Satoshi, for example, is thought to have almost one million Bitcoins that have never been spent.
Second, many Bitcoins are lost or destroyed, either accidentally or deliberately. People who lose their private keys – or even their computers – will simply be unable to access those coins, for example. They exist, in that they have been mined, but they are very unlikely to ever be an active part of the market.
As the number of new Bitcoins being mined slows, the price is likely to go up still further, because of the basic supply and demand mechanism of the free market. However, Bitcoins can be divided by eight decimal points – each of which is a one hundredth of a single Bitcoin, known as ‘one Satoshi’. In total there will be 2.1 quadrillion Satoshis, which is more than enough for everyone on the planet to have a share, should the cryptocurrency eventually reach that point.