While the number of bitcoins in existence will never exceed 21 million, the money supply of bitcoins can exceed 21 million due to Fractional-reserve Banking.
wonder how it is possible?
once you reach 21,000,000 then does it mean bitcoin transaction is not possible?
It does not mean that at all.
Because by verifying the transaction,miners build a block and get reward. But since it can not mined then they will either has to verify for free?
Or the reward shifts to payment transaction fee may be?
The block reward consists of the sum of all the transaction fees of all the transactions that are included in the block plus the block subsidy.
The block subsidy is currently 25 BTC, and it gets cut in half (and rounded down to the nearest 0.00000001 value) every 210,000 blocks (approximately every 4 years). This means that some time next July the block subsidy will become 12.5 BTC. Then, about 4 years later the block subsidy will become 6.25 BTC. Eventually the block subsidy will be less than the average block transaction fees. At that time the block reward will mostly be transaction fees as the block subsidy continues to be cut in half every 210,000 blocks. Somewhere around the year 2136 the block subsidy will drop from 0.00000002 BTC to 0.00000001 BTC, then somewhere around the year 2140 it will be cut in half and rounded down to the nearest satoshi value 0.00000000. From then on, there will no longer be a subsidy and the only payment the miner will receive will be the transaction fees.
How would money supply of bitcoins can exceed 21 million, I would love to pursue this one along with fractional-reserve banking term. That link has nothing in it though.
If bitcoin banks are allowed to loan out bitcoins that they have received as deposit, and are allowed to exchange deposit values without having to actually move any bitcoins.
Example:
Here is a scenario:
Imagine total of BTC1000 in actual currency exists...
Alfred owns all of it an deposits this BTC1000 into an on demand checking account at a bank.
(Total bank deposits BTC1000, Total bank loans BTC0, Reserve on hand BTC1000, Reserve 100%)
Betty receives a loan from the bank of BTC800.
(Total bank deposits BTC1000, Total bank loans BTC800, Reserve on hand BTC200, Reserve 20%)
So the bank has loaned out a "fraction" of their deposits, not a "multiple" of their deposits.
Betty uses the BTC800 to purchase something from Charlie
Charlie deposits the BTC800 that he just received from Betty into his own checking account.
(Total bank deposits BTC1800, Total bank loans BTC800, Reserve on hand BTC1000, Reserve 55%)
Notice the BTC1800 in deposits at the bank from BTC1000 currency limit. This is how "fractional reserve" multiplies money.
Notice the bank still only has BTC1000 in reserve on hand. There is no increase in the actual amount of bitcoins in existence, but if you add up how much each individual thinks they have, the total is greater than the BTC1000 limit. Meanwhile, nobody believes they have accepted a bitcoin backed banknote, since they can all see that they've actually received real bitcoins that they deposited at the bank. Lets carry the process forward and see what happens.
Denise receives a loan from the bank of BTC640. (re-loaning out the same money that was already loaned out to Betty, and deposited by Charlie)
(Bank deposits BTC1800, Bank loans BTC1440, Reserve on hand BTC360, Reserve 20%)
Denise uses the BTC640 to purchase something from Elliot
Elliot deposits the BTC640 that he just received from Denise into his own checking account.
(Bank deposits BTC2440, Bank loans BTC1440, Reserve on hand BTC1000, Reserve 41%)
Francine receives a loan from the bank of BTC512. (re-loaning out the same money that was already loaned out to Betty and Denise)
(Bank deposits BTC2440, Bank loans BTC1952, Reserve on hand BTC488, Reserve 20%)
Francine uses the BTC512 to purchase something from George
George deposits the BTC512 that he just received from Francine into his own checking account.
(Bank deposits BTC2952, Bank loans BTC1952, Reserve on hand BTC1000, Reserve 34%)
Hanna receives a loan from the bank of BTC409. (re-loaning out the same money that was already loaned out to Betty, Denise, and Francine)
(Bank deposits BTC2952, Bank loans BTC2361, Reserve on hand BTC591, Reserve 20%)
Hanna uses the BTC409 to purchase something from Ivan
Ivan deposits the BTC409 that he just received from Francine into his own checking account.
(Bank deposits BTC3361, Bank loans BTC2361, Reserve on hand BTC1000, Reserve 30%)
At this point we already have BTC3361 in deposits from that single BTC1000. Alfred, Charlie, Elliot, George, and Ivan all believe that they are the true owners of this money since they each received real bitcoins and then deposited it into their own checking account. Where did the extra BTC2361 come from? Meanwhile the bank has re-loaned out the same money over and over without a single cent of it having been repaid yet. The bank's "fractional reserve" never fell below 20%, and yet somehow they've managed to loan out "multiple of its reserves".
This process can continue over and over, expanding the money supply until there is BTC5000 in deposits, since the maximum the bank can ever have in reserve is the full BTC1000 of physical cash in existence. This would result in BTC5000 in deposits, BTC4000 in outstanding loans waiting on repayment, and BTC1000 in reserves.
