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I've just recently gotten into bitcoin, but I'm a bit confused about this 21 million bitcoin cap. From what I've read, computers on the bitcoin network validate transactions, which confirms the transfer of bitcoins between addresses. As a reward, these nodes receive bitcoins. My question is once the 21 million bitcoin cap is reached, doesn't that mean there's no incentive to validate transactions anymore? Won't the whole network essentially cease to function? Thanks!
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Miners (who will no longer be mining, but will be validating transactions in the blockchain) will earn transaction fees. What those fees amount to or are to be interpreted as are hypothetical at this point, but might be imagined to be a transaction cost that ensures the security of the ledger.
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If the transaction fees from miners are not sufficient to maintain the security of the ledger, than the network will self-destruct. But, with the cap being so-far away (who knows how many years) by then computing power should be sufficient to ensure the sanctity of the network with very very minimal costs (low power costs), it wouldn't surprise me if bitcoin takes off and becomes somewhat of a world reserve currency, that most "smart homes" or devices, in that time frame will be "bitcoin enabled", and will donate small % of cpu cycles to maintain the network for the good of society.
Think about it, at that point who cares if mining is not profitable? when your fridge is...mining at the cost of 1$ USD a month (in todays money).
All the computer power will come from small powerful low power usage devices that will cost pennies.
Decentralization, all the mining and such that is going now is just baby steps for bitcoin (or its replacement), the money flowing into bitcoin (disguised as "profit") to miners is really just the world slowly building a monetary base to support the coin and development of the network.
Free-Market economics based on profit will evolve out of mine to profit into "mine to mine for the sake of keeping your savings secure", just like how we let banks charge us absurd interest on loans for the sake of making the transactions somewhat secure and keeping the money system "going"....however in-efficient and draconian the current economic model is.... atleast it works ...sorta.
baby steps. Bitcoin is star-trek level money, we need to reach global prosperity while minting the new monetary system into existence.
People worried about the "end of bitcoin when it hits 21m" are very near-sighted.
The above is based on my view and basic understanding of economics....
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I don't think the 21 million cap will ever be 'reached'. It will be approached, but it is designed similarly to an asymptote. The rewards will just be halved indefinitely. The idea is the reward will increase in value with the deflation of bitcoin together with the accumulated transaction fees of the network.
Xenos paradox is resolved, in this case, by the granularity of the number systems used for cryptography. – alfwatt – 2014-02-28T06:31:11.377
1That is not accurate. The reward is actually defined to drop to zero in finite time. – Nate Eldredge – 2014-09-04T21:12:52.077