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According to Wikipedia, here's a projection of expected future Bitcoin supply:
Is there any effect to the dynamics of the system beyond the valuation of Bitcoins?
For example, is mining required to produce computations to support the system, and if so, how would the system manage a massive decline in mining with a surge in transactions?
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A surge in transactions would mean a surge in transaction fees. So it does not follow that there would be a massive decline in mining.
In any event, we have about a decade to work out what changes, if any, are needed. Nobody has a crystal ball.
One interesting issue though -- right after a block is mined, all the 'juicy' transactions will be taken, and the available transaction fees will be low. Miners might wait a bit (especially if they can save power/money by pausing mining) until the possible transaction fees reach a higher level. The consequences of that "off and on" surging in mining power need to be considered.
1Surge mining is an interesting concept however I think the behavior of the network won't be uniform. Some miners maybe operating highly efficient (in terms of watts per block) FPGA or high end custom build cards likely would run 24/7/365. Sometimes they will get the small blocks but sometimes they won't and as the pending transactions grow more miners join in because it hits their cost/reward ratio. Likely mining software will be much more sophisticated capable of doing realtime analysis to predict best times to turn on and off based on various factors. – DeathAndTaxes – 2011-10-06T20:36:58.860
"right after a block is mined, all the 'juicy' transactions will be taken" - can you please explain this sentence? What are "juicy transactions" and why the available transaction fees will be low? – Erel Segal-Halevi – 2017-03-24T10:27:18.960
Juicy transactions are ones with high transaction fees. The miner of the previous block likely will take them. – David Schwartz – 2017-04-01T16:54:34.610
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For example, is mining required to produce computations to support the system, and if so, how would the system manage a massive decline in mining with a surge in transactions?
Miners don't "share the load" but rather compete to find an answer to the same problem: a nonce for the next block which makes the block header hash smaller than a certain value. The difficulty of this problem is set artificially (but by distributed consensus) to keep the rate of new blocks being created at about 1 per 10 minutes.
If a lot of miners quit, the difficulty is automatically lowered and transactions will continue to be confirmed at the same rate. In this sense, it is not necessary to have a lot of miners.
However, this does make the network less secure because it makes it easier for an attacker with a lot of computing power (i.e. more than 50%) to make large changes to the block chain. That would enable double spending attacks among other things.
To prevent miners from quitting, transaction fees would have to compensate for the reduced block reward. So the real question is: what will the transaction fees become as the block reward tends to zero? And will they be enough to keep the block chain safe?
+1 @Wim Coenen: Knowing nothing about the dynamics Bitcoin system, your answer appears to flush out the issues the best so far. – blunders – 2011-09-25T01:14:11.343
One thing I would add is the only danger is in the speed of decline of miners. Namecoin is a good example. If right after a difficulty adjustment 90% of miner's quit then average block time would be 100 minutes. The next difficult would drop BUT it would take 100 *2016 blocks = 4.7 months before that happened. As long as the rate of change in hashing power is gradual the system can adapt well to rising or falling hashing demand. – DeathAndTaxes – 2011-10-06T20:39:22.633
Testnet now sets the current block's difficulty to 1 if a block is taking more than 20 minutes to find (with the exception of each 2016th block), so it shouldn't take much more than 4 weeks to get to the next difficulty drop. – Chris Moore – 2012-02-26T18:16:33.060
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I have read a lot about bitcoin,and It seems by design, That as popularity and usefulness grows that the miners will be paid by transactions fees equal x number of bits by continued mining for the last infinite bitcoin which will never be reached.........by design to go on forever.
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I would like to add some other effects not mentioned yet. The income of newly mined bitcoin to miners will get less over time. The costs don't outweigh the benefits, so miners drop out. This results in longer processing time per block. Then it would cause the difficulty to drop, making it less expensive to mine a block.
So there won't by a mining stop, there will just be less miners mining against a lower difficulty. At the level where the benefits outweighs the costs. And since the amount of new coins mined is halve every 4 years, the changeover is not abrupt.
Partly this will be compensated by the transaction fee, but people will also be able to change to other crypto-currencies if those provide lower fees. This could effect in a price drop of BTC, which would make it less lucrative for miners to continue, again re-establishing the balance.
Miners don't hold an absolute monopoly.
In real live economy: The consumption of milk is going down, so there are too many milk farmers. The price of the milk goes down. Some milk farmers won't be able to feed their cows and will close doors. Some of them do things smarter / cheaper and will survive.
@David Schwartz: I rolled back your edit because it made the question look as if the question had been CLOSED as a "Possible Duplicate", which it hasn't. Here's the link you provided, which is normally been on my experience is placed as a comment unless the question is closed: What happens once mining speed gets close to zero?
– blunders – 2011-09-24T01:40:05.240