Max Number of Bitcoins - Then What

[xavier]

Hey guys

MB this has been approached already, but I couldn't find it on the forums.

What happens when we reach maximum allocation of BitCoins?

Currently there are about 6m coins in circulation. I believe the maximum is 21m. I don't know the rate of creation, but I read somewhere than theoretically in 50 years time all the coins that can ever be created will be in circulation.

Question is: What then

At the moment, the nodes supporting the network are incentivised because they get paid a certain amount of coins per transaction, which they are allowed to create.

However when #BTC = 21m, nodes will not be allowed to create any more BTC.

So what incentives are there at that point for nodes to continue supporting the system?

[gusti]

Hey guys

MB this has been approached already, but I couldn't find it on the forums.

What happens when we reach maximum allocation of BitCoins?

Currently there are about 6m coins in circulation. I believe the maximum is 21m. I don't know the rate of creation, but I read somewhere than theoretically in 50 years time all the coins that can ever be created will be in circulation.

Question is: What then

At the moment, the nodes supporting the network are incentivised because they get paid a certain amount of coins per transaction, which they are allowed to create.

However when #BTC = 21m, nodes will not be allowed to create any more BTC.

So what incentives are there at that point for nodes to continue supporting the system?

Fees.

[Matt Corallo]

There has been quite a bit of discussion on this.  Will there be enough fees? Will they trend to 0 or to infinity?  Will mining be supported enough?  Its all a big unknown.  If you do some searching on the forums, and looking through the #bitcon-dev IRC logs you should be able to dig up quite a bit.  (there was a discussion with TD/[mike] a couple days ago on this matter after he had a discussion with his coworkers  at Google.  

[m1c4a1]

If you can divide each bitcoin up to 8 decimals -> smallest amount is 0,00000001. You can have 21000000 / 0.00000001 = 210 000 000 000 000 pieces of valid bitcoin amounts. According to this article http://uk.answers.yahoo.com/question/index?qid=20100813041446AAWsYaP there is probably $40 000 000 000 000.
So there is 5,25-times more bitcoins than fortune worldwide. I think humankind should be able to work with that.

[Matt Corallo]

If you can divide each bitcoin up to 8 decimals -> smallest amount is 0,00000001. You can have 21000000 / 0.00000001 = 210 000 000 000 000 pieces of valid bitcoin amounts. According to this article http://uk.answers.yahoo.com/question/index?qid=20100813041446AAWsYaP there is probably $40 000 000 000 000.
So there is 5,25-times more bitcoins than fortune worldwide. I think humankind should be able to work with that.

I believe the OP was asking about mining but in any case.  Current M1 supply of USD is around $1.9 trillion = 190 000 000 000 000 cents. 
M1 of the Euro is around 4.7 trillion = 470 000 000 000 000 cents.  Approximate UK M0 supply is 193 million GBP = 19 300 000 000 pence.  Added together you get 660 019 300 000 000.
Maximum bitcoins in base units is 21000000 / 0.00000001 = 2 100 000 000 000 000 (you missed a 0). 
Obviously there are way more currencies in the world, but you get the idea.  We have enough.

Note that I use M1 supply here as it represents hard currency not money which is created by financial institutions on top of the currency as those could be created on top of bitcoin and are not bound by the 21 million limit.

http://www.federalreserve.gov/releases/h6/current/h6.htm
https://stats.ecb.europa.eu/stats/download/bsi_t02_03_nsa/bsi_t02_03_nsa/bsi_t02_03_nsa.pdf
http://www.bankofengland.co.uk/statistics/fnc/2011/Mar/TableA.xls

[Rena]

Yes, the fee system does seem a bit iffy to me. Will miners make enough from it to be worth keeping their mining operations going? If all but a few miners drop, won't those few have control of a significant portion of the network's processing power? How will users know what's a good fee to add to each transaction?

It kinda bugs me especially that the fee is set to zero by default, since a lot of people probably won't bother to change it. 0.01 might be a saner default. I doubt people are going to complain about such a small fee that they can disable if they want, but enough will leave it on that there should still be a decent amount going around.
(Just make sure people know it's there - they're likely to get angry at a "hidden fee", even if it can be disabled and no matter how small it is.)

[xavier]

Thanks for the replies guys. I did some more reading on this yesterday. Obviously this scenario is quite unknown, as it will only happen if there is a wide adoption of the currency and if this takes off.

However, my thoughts are that if there are enough people transacting in this currency then it will be in someone's interest to keep the system (ie. required # of nodes) running. And hopefully that person will be able to fund maintenance of the network.

However this is an unknown. Sure the fee system could work but I'm not convinced about that and still a little confused having read over some past forum posts.

Plus isn't there an issue once the network shrinks to a certain size that makes it vulnerable to security attacks?

How secure is this? This is a brand new technology and there are bound to be issues that will not arise until it reaches a certain level of prevalence. There are also bound to be issues with the source code and the technology behind BTC. I hope that I am just being cynical here and that even if any issues exist they will not pose a threat to this technology. However, with open source software, more eyeballs doesn't always mean software is more secure.

[pusle]

I am not worried even though I did advocate modest inflation in another thread which would also help the financing of miners/super nodes.

As the computing power, bandwidth and storage space become cheaper/more powerful there will be more and more idealist volunteers who will run "super" nodes in the system.

I remember the early days of torrents when it seemed like people would just download and split.
Now it often surprises me how many seeders vs leechers there are.

This is why I'm optimistic about the future

[FreeMoney]

I think there will be volunteers but we shouldn't and don't have to count on them. A very cool thing to me is that small scale mining operations have lots of advantages over bigger ones. If you already have a room and a gpu or 4 then your cost is essentially electricity. If you are in a cold area some of that is returned to you in heat anyway, but if you have to buy the building specifically for this purpose and pay technicians etc your cost will be well higher. If people like mining for altruistic reasons it will be even harder for big players to survive.

[Mike Hearn]

I think the economics of this are still being thrashed out. See some of the arguments I make in this thread:

   http://bitcointalk.org/index.php?topic=6284.0

At any rate, unless there's some big advances in medical technology inflation will not drop to zero until some time after we are all dead. There's plenty of time to figure out these answers.

[Vandroiy]

The main question might just be: do we need lots of miners to support the system at that point?

Optimal case: a system can be established that can agree on a block chain without the use of enormous processing power. Right now, we need expensive calculations to ensure no single person gets all the new coins, but later? There might be a way to keep the system secure and fees low, and we should work hard to find it if it exists. It would make Bitcoin a lot more valuable if there was no compromise to be made between transaction fees and network security.

[Matt Corallo]

The main question might just be: do we need lots of miners to support the system at that point?

Optimal case: a system can be established that can agree on a block chain without the use of enormous processing power. Right now, we need expensive calculations to ensure no single person gets all the new coins, but later? There might be a way to keep the system secure and fees low, and we should work hard to find it if it exists. It would make Bitcoin a lot more valuable if there was no compromise to be made between transaction fees and network security.

The problem isn't that one person will get all the coins, its that one person can undo a transaction if they have >50% of the total network power. 

[bitanarchy]

Hey guys

MB this has been approached already, but I couldn't find it on the forums.

What happens when we reach maximum allocation of BitCoins?

Currently there are about 6m coins in circulation. I believe the maximum is 21m. I don't know the rate of creation, but I read somewhere than theoretically in 50 years time all the coins that can ever be created will be in circulation.

Question is: What then

At the moment, the nodes supporting the network are incentivised because they get paid a certain amount of coins per transaction, which they are allowed to create.

However when #BTC = 21m, nodes will not be allowed to create any more BTC.

So what incentives are there at that point for nodes to continue supporting the system?

Bitcoins will always be created. The cap of 21M is just artificial. It is a result of the imposed rate of exchange between the bitcoins attributed to new blocks w.r.t. old blocks. The blocks will still be created at a constant rate, which means that the rate of supply inflation in terms of blocks is ~1/t, while the rate of supply inflation in terms of bitcoins (with the current imposes geometric fall-off) is ~1/t * e^-t.
But people forget that, unlike gold, bitcoins (or for that matter blocks) are not all identical. They have an age. This is bound to have consequences for the relative market price. At some point in time old bitcoins (read blocks) will be values different from new ones.
I have not investigated all the relevant factors that will determine the price(block age) but I doubt that it will remain exactly as prescribed by the current bitcoin client.
Note that, currently there is no way to select exactly which bitcoins you want to send to someone. But there may be very good reasons to add that feature to the bitcoin client. As soon this is done, people may prefer to have old coins or new ones.... I don't know...

[Garrett Burgwardt]

Hey guys

MB this has been approached already, but I couldn't find it on the forums.

What happens when we reach maximum allocation of BitCoins?

Currently there are about 6m coins in circulation. I believe the maximum is 21m. I don't know the rate of creation, but I read somewhere than theoretically in 50 years time all the coins that can ever be created will be in circulation.

Question is: What then

At the moment, the nodes supporting the network are incentivised because they get paid a certain amount of coins per transaction, which they are allowed to create.

However when #BTC = 21m, nodes will not be allowed to create any more BTC.

So what incentives are there at that point for nodes to continue supporting the system?

Bitcoins will always be created.

That is incorrect, after slightly less than 21 million have been created, blocks will stop having a reward.

[bitanarchy]

That is incorrect, after slightly less than 21 million have been created, blocks will stop having a reward.

Ok, but these blocks will still be assigned to people. What if people start trading them as a separate currency? You see what I mean...

[Matt Corallo]

That is incorrect, after slightly less than 21 million have been created, blocks will stop having a reward.

Ok, but these blocks will still be assigned to people. What if people start trading them as a separate currency? You see what I mean...

There are quite a few problems with that.  First of all how do you transfer ownership of a block?  I very highly doubt blocks will ever be traded (if you can even figure out a way to do that).

[xavier]

But people forget that, unlike gold, bitcoins (or for that matter blocks) are not all identical. They have an age. This is bound to have consequences for the relative market price. At some point in time old bitcoins (read blocks) will be values different from new ones.

Really? So not all bitcoins have identical value? Am I the only person who read this and thought it a little strange..

[Matt Corallo]

But people forget that, unlike gold, bitcoins (or for that matter blocks) are not all identical. They have an age. This is bound to have consequences for the relative market price. At some point in time old bitcoins (read blocks) will be values different from new ones.

Really? So not all bitcoins have identical value? Am I the only person who read this and thought it a little strange..

Nope, me too.  I don't think anyone but bitanarchy gives any bitcoins a different value.  As far as anyone is concerned all that matters is that they get a txin that they can spend.  Thats all they need to know and, in fact, in the not-too-distant-future, that is all most clients will know (thin clients).

[bitanarchy]

That is incorrect, after slightly less than 21 million have been created, blocks will stop having a reward.

Ok, but these blocks will still be assigned to people. What if people start trading them as a separate currency? You see what I mean...

There are quite a few problems with that.  First of all how do you transfer ownership of a block?  I very highly doubt blocks will ever be traded (if you can even figure out a way to do that).

Oh, I get it. The first transaction in the block assigns a number of bitcoins to an address that is chosen by the creator of the block. The software is currently configured to reject blocks that assign an incorrect number. That is a  number that is not according to the sequence: 50, 25, 12,5, etc for respectively 4 years each. So you say, that at some point in time the block creator cannot add an extra transaction assigning bitcoins to himself anymore?

[bitanarchy]

But people forget that, unlike gold, bitcoins (or for that matter blocks) are not all identical. They have an age. This is bound to have consequences for the relative market price. At some point in time old bitcoins (read blocks) will be values different from new ones.

Really? So not all bitcoins have identical value? Am I the only person who read this and thought it a little strange..

With gold, it is very difficult to impossible to determine where the gold came from... especially when you collect it and melt it.
I realize now that bitcoins of different age can also be merged and spitted up. And this process destroys a well-defined relation between a (fraction of) a bitcoin and a block it originated from.
So the situation is more complicated than I thought.