Ever since the bitcoin network began working, new BTC tokens are unlocked or mined every day. With the current network hash rate, the same number is around 1,800 BTC tokens per day, when all of the mining potentials are combined. All of them enter circulation in the network immediately after they are discovered. Recently, a big milestone was reached by the mining companies – the 18 millionth BTC was mined.
This left only 3 million unmined tokens in the entire network. Since its inception, bitcoin blockchain continues to be hard-capped – meaning defined by a principle that cannot be changed at 21 million BTC tokens. This means that in theory, throughout the rest of the entire existence, there will never be 21 million and one BTC tokens.
Naturally, the milestone is important not just because it shows the steady nature of the mining community and its continued growth. But, it also once again raises the scarcity angle and how it could potentially change the outlook of the network more and more in the coming years. Its potential is hazy but it is most definitely there and if the scarcity becomes more apparent to investors of all caliber, it could be a very important feather in the bitcoin hat.
History of Digital Money
Bitcoin is the first example of successful digital money that has been developed outside of any traditional financial sector. But before it came about in 2009, there have been other attempts at doing the same. Nick Szabo is the person who is credited with coming up with a proof-of-work method of allowing cryptocurrencies to work. However, his previous attempts at making a usable cryptocurrency in the form of Bit Gold failed to get any meaningful traction.
After that, a man by the name of Adam Back created HashCash, which was another take on the proof-of-work setup. This also failed to produce a popular solution but Back continues to be one of the key bitcoin developers and he is also the CEO of Blockstream. Finally, with the ending of the global recession in 2009, Satoshi Nakamoto launched bitcoin and the new chapter in history began. It solved a lot of the problems that stopped previous networks from getting any larger user base. Still, the proof-of-work did not go anywhere and the cryptocurrency kept it in place. Behind it, the process of mining of hashing became the bedrock of this cryptocurrency and basically all that followed with a few non-mined centralized alternatives.
To mine Crypto
Today, mining of cryptocurrency is one of the most developed crypto industry fields and also one that keeps growing in virtually all parts of the world. In fact, places like Iran recently made huge changes in their legal systems to recognize this venture as one of the regular industries with all benefits and regulations that are connected to that status.
Yet, since the launch that Nakamoto did, the process of mining remained the same. It is expensive and very energy-demanding. It resides on mining rigs, specialized computers that compete with each other to come to difficult mathematical solutions which in turn mine or validate each individual block. Once validated, it becomes a part of the blockchain network forever and all of its models are interconnected.
Miners are rewarded for this expensive and technologically complex process with BTC tokens which belong to them and which can be sold on cryptocurrency exchanges. Right now, with each validates a block, a miner gets a 12.5 BTC reward, which translates to about 100,000 USD at the currency BTC prices. In May 2020, however, the same reward will be cut down in half to 6.25 BTC. This event is called halving and it is also a predefined process that the bitcoin network completes on regular time intervals.
The halving of the miner rewards is a key element of the notion of driving bitcoin value through scarcity. In the community, they hold somewhat of a festive status where halving parties take place to commemorate the same event. In the age of digital technologies, esports, and omnipresent social media, Nakamoto had the foresight to create a method of having the BTC token slowly gain more and more in its long-term potential, while also letting the network keep onto its mining and hashing operations.
This way, both the miners continue to have the incentive to keep working and the rest of the users can take on bitcoin through whatever channel and know that they are attaining something that will keep its value in the years to come. Even in the distant future and the moment when all tokens are mined, the miners will still get their rewards for their effort to validate and secure the network.
This will come from fees that will occur every time individuals or organizations send and receive cryptocurrency assets. Yet, can the scarcity factor really make a difference in the current state of crypto markets and the way these assets are embraced by ordinary citizens and business entities?
Speeding Up Adoption
The main drive behind the idea of having scarcity fuel adoption comes from a version of the fear of missing out. In that setup, those who are not using cryptocurrencies – in this case, bitcoin – would be pressured by the notion of missing out on a very scarce and thus valuable asset. However, historically, the process of fear of missing out rarely produced long-standing results.
Instead, it had the tendency to push money into a market, but also quickly drain it once the wave has passed. In this case, underlining the idea of scarcity in the bitcoin network is a useful thing for those who wish to explain how the network actually works and what protects it from problems like inflation.
More precisely, bitcoin is with its hard cap completely immune to inflation and deflation in the traditional sense. Instead, the market fully dictates the movements of the price and the same will continue forever. Still, working on the possibility of people being actually driven by scarcity cannot provide any long-term and meaningful benefit to the network.