I understand that the supply of Bitcoins, by design, will not continue to grow to infinity, but is "capped" at 21,000,000. This amount is not in circulation, however, because there are coins that have yet to be mined. I also understand that the reward for a successful miner is 25 coins, but that the reward will be reduced by a factor of 0.5 at certain points. It seems like the supply of coins will always approach 21,000,000 but never actually get there - a limit. If this is all accurate (please correct me if it isn't), does this imply that the incentives for miners will also be reduced? As time goes on, following this logic, miners should stop working altogether, at which point, new transactions can no longer be added.

Assuming this all plays out, would people simply "roll" into a new blockchain at that time?

but never actually get there

Except at some point there will be a rounding error (as numbers are integers in the code) to zero new coins being mined.

does this imply that the incentives for miners will also be reduced?

Not really. First of all the miners also collect all the fees from all transactions. That should compensate for the reduction in new coins being mined. Another factor is the price of Bitcoin, either in USD or by the time USD doesn't exist anymore, the number of aircraft carriers you can buy for 1 Bitcoin.

Rolling out a new chain will actually probably become harder and harder over time as the network effect causes people to use the chain that is most useful. The number of other people that use it is a big part of its usefulness.

  • great color - thank you. Murch pointed me to a great article above on what might happen when mining fees drop to zero. You mentioned that rolling out a new chain will become harder over time, but what are some of the alternatives people are talking about to rolling out a new chain? Would it be possible for miners to continue adding to the chain, accepting only transaction fees, somewhat indefinitely? – Robert Dec 10 '15 at 15:54
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    Yeah, the idea is that transaction fees will replace the reward. July 2016 will be the next halving, so either the price needs to double or the transaction fees need to add up to 12.5 BTC or miners need to become more energy efficient for the miners to get the same compensation as they do now. If not, then miners will either earn less, or more likely go out of business. It will probably be a combination of those 4 outcomes. The same thing will happen again 4 years later. etc. – Jannes Dec 10 '15 at 16:03

Newly-minted bitcoins are awarded to miners as these miners mine new blocks in the blockchain. The number of new bitcoins generated per block is currently 25BTC, and this number is halved every 210,000 blocks (at 10 minute intervals between blocks, this equates to approximately every four years). See https://en.bitcoin.it/wiki/Controlled_supply for more info.

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