What happens to Crypto Mining when coins run out?

What happens to Crypto Mining when coins run out?

Bitcoin's original developer built value into his monetary system by artificially limiting the total number of digital coins that could ever be in circulation. That number is 21 million. In order to stretch out the release of all 21 million coins for as long as possible, Satoshi also built in to Bitcoin a system whereby it becomes harder to mine coins as more coins are released. But eventually the coins will run out. Then what?

No one really knows for sure what will happen to Bitcoin's value on that fateful day. What happens after coin supply is exhausted is uncharted territory. However, we may know soon enough. Monero is allegedly 90% mined, and experts say that the 18.4 million total coins created by the project will be released no later than the end of May 2022.

For their part, Monero's developers say that their blockchain contains code that makes it possible to continue releasing 'tail emission' coins in perpetuity. Don't worry, tail emissions will be explained in this post. They represent just one way to deal with the limited coin issue. But there are other ways to address it as well.

In the meantime, there are plans to fork Monero as of April 30, 2019. MoneroV will ostensibly create a new stream of coins just in case relying on tail emissions proves to be a bad idea.

Why coins are limited

The vast majority of cryptocurrency owners across the globe are not big-time investors looking to get rich off their coins. They are average people who might use litecoins or bitcoins to play Mega Moolah online. To many of them, the idea of limiting digital coins doesn't seem to make sense. But there are very good reasons for doing so.

One of the problems with fiat is that governments are not prevented from printing more whenever they so desire. In fact, they and their central bank partners do just that as a way to control the money supply. By either taking cash out of circulation or pumping more into it, governments and central banks can manipulate everything from inflation to GDP.

Satoshi did not want any such capability to exist when he created Bitcoin. He instituted a limited number of bitcoins specifically to protect the value of said coins in the digital economy. Limited coins prevent anyone from arbitrarily creating or destroying coins in an attempt to control value.

The value in cryptocurrency is its utility. However, the price of the crypto is determined by supply and demand. As such, limiting supply to a finite number of coins theoretically brings price stability. And as more coins are mined and supply shrinks, coin price becomes more intertwined with value. In the end, the eventual price of Bitcoin will rely on its value as a monetary system. At least that is the theory.

The tail emissions solution

Let's say Satoshi's idea of limiting coins proves to be a brilliant move when the last bitcoin is finally mined. Price and value become intrinsically linked, and together they are linked to Bitcoin's utility. That is all well and good. But the network is still going to require miners to facilitate and maintain the blockchain. Those miners will still need to be rewarded for their work, otherwise they won't do it.

Well, you cannot reward miners with coins you don't have. Monero's solution is to allow tail emissions. What are tail emissions? They are 'extra' coins that go exclusively to miners at a fixed rate. Monero's fixed rate is 0.6 XMR per block. So once the last XMR coin is released, miners will no longer be subject to an ever-decreasing reward. They will earn a fixed reward for continuing to maintain Monero's blockchain.

By now you might be wondering how it's possible to allow tail emissions and still maintain the integrity of the original blockchain? To understand that, you need to know that not every XRP coin will stay in circulation after it has been mined.

Lost and burned coins

There is a fundamental truth within cryptocurrency that some coins eventually disappear from circulation. This happens in one of two ways. First is loss. For example, imagine having purchased USD $100 worth of XRP using a laptop computer.

One day, without warning, your laptop crashes thanks to a burned-out CPU. You are so preoccupied with purchasing a new computer and getting yourself up and running again that you forget your XRP is stored on the old laptop's hard drive. You discard the hard drive only to realize later that your coin is gone forever.

Coin losses happen all the time due to carelessness and human error. Yet there is another way that coins are taken out of circulation: burning. You can burn coins by sending them to a bogus address with no known private key attached to it. Once the transaction has been verified and added to the blockchain, it is irreversible. You have essentially made those coins unusable because they can no longer be retrieved.

Coin burning is actually fairly common. It is sometimes practiced by investors in order to artificially inflate coin price by further limiting supply. One particular cryptocurrency known as Eidoo purposely burned a predetermined number of tokens immediately after its ICO just to see what would happen. Just as they expected, the value of their coins increased.

It is generally accepted that tail emissions can be supported indefinitely through a combination of lost tokens and burning. It seems reasonable on paper. But given that it has never been done on a large scale before, we will not really know until Monero reaches that point.

Creating a hard fork

Another way around coin limits is to create a hard fork of the existing cryptocurrency. Perhaps Monero being forked is an insurance policy just in case tail emissions don't work. Who knows? The people behind MoneroV are not saying. If anything, they insist that their hard fork is being undertaken for completely separate reasons that have nothing to do with coin supply.

At any rate, hard forks allow for changing underlying code without violating the principles of the original. Bitcoin Cash is a hard fork of Bitcoin intended to address some of Bitcoin's speed issues and increase coin capacity.

The interesting thing about hard forks is that they create an entirely new stream of digital coins. This isn't a bad deal for investors. Why? Because they maintain ownership in the original cryptocurrency as well as ownership of the coins that the new crypto has created.

Let us go back to the establishment of Bitcoin Cash as an example. When Bitcoin was forked, the people behind Bitcoin Cash used the same blockchain that the original Bitcoin relied on. Developers chose a certain point in that blockchain and forked from there. Everything in the chain prior to the Fork remained intact.

Doing things this way means that all of the recorded transactions prior to the fork remain in place within the forked blockchain. That means every Bitcoin owner at the time of the fork also became a Bitcoin Cash owner. They actually doubled their holdings just by being coin owners when the fork took place.

Adding more coins to the blockchain

A third way around limited coins is to simply alter the code and add more coins to the blockchain. This is the least desirable option because it runs afoul of some of the basic tenants of decentralized cryptocurrencies. Will it ever be tried? Perhaps. But do not expect any of the major cryptos to go that route. Once you start adding coins to cryptocurrency, you introduce the possibility of someone using that capability to manipulate the value in the same way fiat is manipulated.

That said, there are other ways to manipulate pricing. We have already talked about burning. Another way is to inflate trading volumes on an exchange. This is something we now know happens with frequency. Increasing volumes makes people believe that the market is hotter than it is, prompting them to buy where they might have otherwise maintained a hold position.

No end of the world scenario

It's important to wrap up this post by letting readers know that we are not proposing an 'end of the world' scenario when Monero finally exhausts all of its coins. It will not be the end of the crypto world when Bitcoin gets to the end of its 21 million coins either. Remember that cryptocurrency is not legal tender. The world's economies do not revolve around it.

The beauty of cryptocurrency is that there are legitimate and functional ways to deal with limited coins. Two of the three methods mentioned here address the problem without running afoul of the original tenants established by Bitcoin.

All that's left now is to wait and see what happens. It looks like Monero will be the first to test the waters of reaching coin limits. They will be the first to test the theory of tail emissions as well. And if it doesn't work, MoneroV will be there to pick up the pieces. It is going to be fun to watch.

Byline: This article was published by Henry.
About: I'm a bitcoin advocate and admin of Coinbet.com.