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I am sure this question has been answered somewhere, but most searching comes up with "how blockchain works" and other unrelated results. I am trying to verify my understanding of the theoretical end of minting new coins.

Is my understanding correct that coin minting and difficulty levels are not coupled? In other words, the difficultly level changes according to hash power, while the coin minting schedule decreases in a hard-coded way. Such that, in the end, no new coins can be minted but block difficulty would remain proportionate to hashing power of the network.

I think this is right but need to confirm before educating others about this scenario.

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You're basically correct. The rate at which block reward and thus inflation (or lack there of) is determined is by block height alone. That is, starting from a maximum of 50 new bitcoins generated per block at height 1, and halving that amount every time 210000 blocks have been generated, the maximum amount of new bitcoins that are allowed to be generated by a generation transaction in a block eventually becomes less than one satoshi, which is the smallest unit of amount of in a coin, at which point generation of new bitcoins stop.

On the other hand, the difficulty, or technically the "Target" that a block header hash must be below (it's just a big number) is only determined by the rate at which blocks were generated during the previous 2016 blocks re-target period, starting from the very first and highest target which is also the lowest difficulty (difficulty 1) onward. This means that difficulty (or target) can change and does go up and down as hashrate enters and leaves the network.

  • And because difficulty still goes up and down, but no new coins are minted, the incentive for future miners to keep hashing away would only be the transaction fees. I think this confirms my understanding. Thanks! – Cryptocoon Jan 24 '18 at 20:26
  • Well, block reward will become insignificant relative to fees a lot sooner than before it stops entirely. At least we hope so. – arubi Jan 25 '18 at 18:35

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