What happens to validation when miners stop mining?

BITCOIN
#1

I stumbled upon this very question when I was reflecting on the future of Bitcoin this very morning. You will have to excuse my limited knowledge in the Bitcoin and Blockchain if this question is somewhat irrelevant.

Considering the fact that there is a limited quantity of bitcoins, and that the difficulty in mining increases as we get closer to reaching that quantity, we would arrive at a point where it is not worth the cost of electricity and hardware to mine bitcoins.

How will this affect validation of transactions and blocks, as every transaction is validated by the miners before being included in a block? How will validation occur when itā€™s not ā€œworthā€ mining?

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#2

Oscar, this is a really good question, I have wondered this too. Also, If big monopolies are the only ones left mining and they decide to stop due to lack of profit or for political reasons is the system no longer decentralized? Do premined coins have this risk? I need to study this more but hopefully someone will correct me if what I am saying doesnt make sense.

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#3

Excellent question , I been pondering from start on this. Probably how miners are going to behave once halving occurs? Would need an expert to answer this :sunglasses:

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#4

Iā€™m glad to hear Iā€™m not the only one wondering this :slight_smile:!

@ivan we need someone to enlighten us here, perhaps you know the answer?

#5

Well, Iā€™m definitely no expert but Iā€™d guess that itā€™d make sense to have transaction fees pay to keep validation going. I asked myself the same question a while back and thought this was good solution. What do you think?

#6

The transaction fees will be the only income source for miners at that point. The question is whether the transaction fees will be enough for miners to stay incentized to mine? Itā€™s a game theoretical question, I think this is a question many people think about currently. This scenario is still very far away time-wise, who knows how the Bitcoin protocol will evolve in the future and how Bitcoin will look like in 50-70 years

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#7

I am not expert at all. My knowledge are far way from some of you and especially far way from Ivanā€™s. However, I would like to say (ask) that: imagine if bitcoin price goes up to 10k+ USD and even goes up to a crazy price such as 50k+ USD, wouldnā€™t this be a huge incentive to miners to continue to mine? I mean if bitcoin price goes very high, perhaps bitcoin fees will be higher, nope?

My question is what happens to miners once all bitcoin (21M) are mined?

Does a transaction done via a minted crypto needs to be validated ? Yes, nope?

Thank you.

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#8

Yes if the price of bitcoin goes up, miners have more incentive to mine. But, the transaction fees donā€™t really depend on the price of bitcoin (at least not directly). Although I say this, even if the transaction fee stays the same in bitcoins and the price of bitcoin goes up, the fee will increase in the sense that it it will cost more fiat (US dollars for example).
Also, itā€™s important to know that these transaction fees are not set in stone, you can actually choose your transaction fee to a certain degree depending on your wallet. Consider though that miners will prioritize blocks that offer better fees.

The way transactions work is they must be validated to be recorded in the blockchain. This means that when you send bitcoin there must be a way to make sure itā€™s real. This is where miners come in.
Under the current proof of work system, miners compete with each other using real physical hardware to solve a mathematical problem. This is is how a block is validated.
The one who wins reaps the rewards by getting the fees of all transactions in the block. They also get an amount of bitcoins that are created in that moment. The amount that is created is a lot more than the amount of fees in the block the was validated, so most of the minerā€™s gains come from the creation of new bitcoins.

So what happens once all bitcoins are mined?
No more new bitcoins will be created but the fees of each transaction will still provide bitcoins for the miners.
As @ivan said, the question we donā€™t know the answer to is whether or not this will be enough to keep the miners interested in validating blocks.

Hopefully this answers your questions :slightly_smiling_face:

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#9

Eddy, this really helped me understand this concept, thank you for taking the time to write this.

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#10

I am certainly no expert buy my understanding is that the entire mining operation is a perfect free market in action. There are 2 mechanisms that will keep miners mining.

  1. At present mining rewards come from mining a block and transaction fees. Income from transaction fees are relatively low today compared to their future potential. If/when mass adoption of BTC occurs then there will be many more transactions that will create much more revenue for the miners. So in 2140 which I think is roughly the date when all blocks are mined, in theory there should be a truck load of transaction fees to incentivise the miners. Let be honest if BTC does not have mass adoption by then, it never will.

  2. There is an adjustable difficulty level for the miners. This has mostly been going up since BTC was created. The difficulty increases as more miners attempt to mine a block, I am not sure if this is coded into the protocol or if itā€™s just a natural effect of competition. The reverse is also true, as mining competition decreases, so does the difficulty. This why when BTC was first launched you could mine on an average laptop and now there are warehouses full of dedicated chip supercomputers mining. As the market price of Bitcoin increases more people are economically incentivise to mine, pushing up the difficulty. Letā€™s say the price of electricity increased tenfold globally or the BTC price drops dramatically then a lot of miners would turn off their rigs. The difficulty would then reduce making it cheaper to mine, so rigs would gradually be turned back on. It will always find a balance. If mining was made illegal in every country then the big institutional miners would have to shut down. The difficulty would drop dramatically and again it would become profitable for individuals to use their GPUā€™s to run the risk of mining over a VPN. This point is Satoshi was very clever he/she designed it to always find a natural balance which makes it very resilient to the world around it.

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#11

If there are only a handful miners left, the difficulty will be adapted based on the hash power of the network (all miners together). I think so. And if that is the fact, then the hash which normally secures the block will be weaker and easier to generate for a block. But this will be still secure enough, so that if a new big miner enters the network he will still need, in comparison, more than 51% of hashing power to be able to fake the 5-6 blocks in history.

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#12

Maybe Mooreā€™s law is taken into consideration for calculating the difficulty increasing as the quantity of available bitcoins increases towards the limit over the years. As long as the value of bitcoins increase as the awarded bitcoins decreases and miners in 2020 have upgraded their mining hardware, which should potentially be 8 times more powerful at the same or less power consumption, instead of still trying to use their 2017 hardware at that time, it might balance out.

1 Like
#13

Oh, I am very thankful for your answer. Thank very much!
I am also so sorry that I got it only now. Iā€™ve been away from the space since the day after I asked the question on here.

I learned a lot with your answer!

To validate each transaction, computers have to solve mathematical problems for each transaction, is it?

Just to be sure, bitcoins are created when miners verify and validate transactions and add them to a block, right? If thereā€™s no verified trasactions, thereā€™s no new bitcoin created?

Your answer is very useful for me.
Many thanks

#14

Hello, David.
Thank you very much for your explanation. As I said to Eddy, I am so sorry for answering only now. But I have been out of the space since the day after I posted the question.

Waou, I did not know this idea that BTC can always find its balance according to the increase or decrease of miners attempting to mine a block.

So, if one day big pools think itā€™s no longer worth to mine, individual people can take the place back?

I hope so because, hosnestly, I think itā€™s very bad that itā€™s almost impossible to do micropayments on BTC network without paying a huge fee transaction. What in my opinion is a shame! In this sense, in what is BTC better than centralized banks? I am not saying if idividuals take the power of mining back, as I think Satoshi dreamed, will decrease the fees, but if thereā€™s any possibility to allow micropayments without crazy fees, it could be a game changer.

Is it possible to know if the ā€œbalanceā€ is coded into the protocol? Probably yes, because how could it be only a natural effect of competition?

Many thanks

#15

Both the reward and the computation take place at block level, so it is actually possible to mine empty blocks, and it has happened a lot.

I think it will be really hard to give mining back to individual users since the appearance of ASICs (basically chips that are designed to only mine bitcoin) , because they are so much more efficient than normal hardware and are quite expensive too.

The mining fees are not a direct consequence of mining pools, if everyone could mine, you would still only include the transactions with the higher fees because you make more money. In a sense what happens today is that transactions basically compete to be in a block due to the low rate of transactions per second of the network. However you do have some off-chain solutions like segwit and the lightning network being developed that could potentially help with this fee problem.

The difficulty is adjusted naturally by the protocol, yes. The main reason it exists is to maintain the pace of roughly a block each ten minutes.

#16

Hi Caiof,

Thank you very much for your explanation!

#17

From an economics point of view, my opinion is:

once the supply of 21m bitcoins is fully mined, the economic aspect becomes

a) the amount of demand for transactions
b) the supply of miners competing for those transactions
c) the difficulty in solving the problem.

If Bitcoin has reached mass adoption, demand will be ever increasing as transactions grow unless costs are too high. If costs are too high and this means the number of transactions falls, it is likely to be because people have moved out of Bitcoin and returned to fiat or converted to other cryptocurrencies or are undertaking transactions on a different platform. That could lead to a huge slump in value of Bitcoin and possibly its extinction

On the other side, if there are a lot of miners (very high supply) and the difficulty in solving the problem is brought down, transactions will be cheap enough to retain user transactions and there will be many many more transactions. This theoretically would mean that Bitcoin remains a transaction base of choice and miners would be rewarded fairly.

The latter option is likely to lead to only a few huge bitcoin mining farms who will have the economies of scale to deliver to be able to make money from it.

The other aspect is that the computational difficulty would have to be manipulated down to reduce energy required to deliver a transaction.

Sound realistic? Or will blockchain massively disrupt theory of economics and bring about new theories?

#18

Happy to see I thought about the same answer after following ā€˜bitcoin and blockchain 101ā€™ :slight_smile: