Bitcoin Transaction Fees Explained in Detail. Bitcoin fees are a fascinating component of the network’s game theory and an indispensable element without which the whole project’s economic sustainability becomes questionable.. Whenever a transaction is sent, miners demand for an arbitrary amount of bitcoin fractions (denominated in satoshis, the hundred millionth part of 1 BTC) so that they. Apr 29, · Bitcoin Net Worth Bitcoins usually make money by charging some transaction fee that is usually low than other forms of payments. A bitcoin is worth 8, U.S. dollars. All the bitcoins around the world are worth roughly around at $ billion. Dec 17, · It's worth noting that it is projected to take more than years before the bitcoin network mines its very last token. In actuality, as the year .
Bitcoin network worthWhat Happens to Bitcoin After All 21 Million Are Mined?
I have no idea. While the PlanB model is accurate regarding what the price of Bitcoin did relative to its historical stock-to-flow ratio, the extent to which it will continue to follow that model is an open question. On a percent-growth basis, the demand increase has been unbelievably fast, but is slowing. When something becomes successful, the law of large numbers starts to kick in. It takes a small amount of money to move the needle on a small investment, but a lot of money to move the needle on a big investment.
The unknown variable for how well Bitcoin will follow such a model over this halving cycle, is the demand side. The supply of Bitcoin, including the future supply at a given date, is known due to how the protocol operates. I think looking at the x range for the next peak relative to the previous cycle high makes sense here for the fourth cycle. That would be my base case: bullish with an increase to new all-time highs from current levels within two years, but not necessarily a 10x increase within two years.
All of this is just a model. I have a moderately high conviction that the general shape of the price action will play out again in this fourth cycle in line with the historical pattern, but the magnitude of that cycle is an open guess.
Suppose Bitcoin has been around for a while after a period of explosive demand. Just a constant low-key influx of new capital. However, there is a shrinking number of new coin supply per year and nobody is selling existing coins other than the miners that produce them.
In the first year, new coins are available for resale. In the second year, only 90 new coins are available. In the third year, only 80 new coins are available, and so forth. Some of those premises are of course unrealistic, and are simply used to show what happens when there is a growing user-base and constant low-key source of new buyers against a shrinking flow of new coins available. In reality, a growing price tend to cause more demand, and vice versa.
When investors see a bull market in Bitcoin, the demand increases dramatically, and when investors see a bear market in Bitcoin, the demand decreases. In addition, not all of the existing Bitcoin stock is permanently held; plenty of it is traded and sold. Chart Source: Glassnode. However, it does provide useful data nonetheless. The simple thought experiment above merely captures the mathematical premise behind a stock-to-flow argument. As long as there is a mildly growing user-base of holders, and some consistent level of new demand in the face of less new supply, a reduction in new supply flow naturally leads to bullish outcomes on the price.
It would take a drop-off in new or existing demand for it to be otherwise. This approach, in my view, gave the protocol the best possible chance for successfully growing market capitalization and user adoption, for which it has thus far been wildly successful.
And these 4 years give investors plenty of time to experience the mania and despair associated with a cycle like this, which would be hard to replicate in 1-year cycles because it would all happen too quickly:. Chart Source: Wall St. Cheat Sheet. It then brings in new users with each cycle. I added green dots to indicate halvings:. Here we see a consistent trend. During the Bitcoin price spikes associated with each cycle, people trade frequently and therefore the percentage of long-term holders diminishes.
During Bitcoin consolidation periods that lead into the halvings, the percent of Bitcoin supply that is inactive, starts to grow. Each time Bitcoin reaches a new order of magnitude for market capitalization, though, it captures another set of eyes due to increased liquidity and price history. We can remove the dollar and various models from the price equation, and just look at Bitcoin priced in another scarce asset: grams of gold.
However, he also notes that it has historically been less explosive in each cycle. My analysis starts by noticing the relative heights and timings of the highs in mid, late and late The second peak is about 48 times higher than the first, while the third peak is about 17x the second.
So the rate of growth in the peaks seems to be slowing. If the next Bitcoin-priced-in-gold peak is 5x higher than the previous peak, as a random example that continues the diminishing pattern, that would be well into the six figures in dollar terms, assuming gold holds its value over the next few years.
After the mania period with this model, it could drop back down into the five figure dollar price range for a while until the next cycle. This is all speculative, but worthy of note for folks that notice patterns. Next, notice the distance between the red and green lines for any given date.
In , the upper bound was about 84x the lower bound. A year later, the ratio was 47x. By it was 22x, and at the start of it had fallen to 12x.
This is a good thing, demonstrating a decline in overall peak-to-trough volatility. If this pattern holds up, the ratio will be about 9x in mid , and about 6. Since Bitcoin started from a tiny base and grew into a meaningful size, in my view its volatility has been a feature, rather than a bug. Whether it ultimately succeeds or fails, Bitcoin is a beautifully-constructed protocol. Genius is apparent in its design to most people who study it in depth, in terms of the way it blends math, computer science, cyber security, monetary economics, and game theory.
Rather than just a fixed set of coins released to the public, or a fixed perpetual rate of new supply, or any other possible permutation that Satoshi could have designed, this is the specific method he chose to initiate, which is now self-perpetuating. This in turns attracts more attention, and entices new buyers during the cycle. The thought put into its architecture likely played a strong role for why Bitcoin reached relatively wide adoption and achieved a twelve-figure market capitalization, rather than come and go as a novel thing that a few cypherpunk programmers found fascinating.
Its death has been prematurely described or greatly exaggerated on many occasions, and yet here it is, chugging along and still growing, over 11 years into its existence, most likely thanks in part to the halving cycles in addition to its first-mover advantage that helped it build the most computational security.
In other words, in addition to solving the challenging technical problems associated with digital scarcity and creating the first cryptocurrency, Satoshi also chose a smart set of timing and quantity numbers out of a nearly infinite set that he could have chosen from, if not carefully thought out to maximize the incentive structure and game theory associated with his new protocol.
Or, he was brilliantly lucky with his choices. There are arguments for how it can change, like competitor protocols that use proof-of-stake rather than proof-of-work to verify transactions, or the adoption of encryption improvements to make it more quantum-resilient, but ultimately the network effect and price action will dictate which cryptocurrencies win out.
How Bitcoin behaves over the next two years, compared to its performance after previous halvings, is a pretty big test for its third halving and fourth overall cycle. Bitcoin was conceived and launched during and ; the heart of the global financial crisis, with widespread bank failure, large government bailouts, and international adoption of quantitative easing as a policy tool by central banks. His protocol was an attempt to store and transmit value in a way that was both verifiable and scarce, like a digital gold in contrast to the idea of bailouts and money-printing.
That crisis took years to play out. Europe experienced a delayed sovereign debt crisis in That whole financial crisis was a process, rather than an event. Over a decade later, we have an even larger crisis on our hands, with larger bailouts, bigger quantitative easing, and direct cash handouts to companies and consumers which are paid for by central bank deficit monetization.
The broad money supply in the United States, for example, has gone up massively. Here is the year-over-year percent change rate:. Chart Source: St. Louis Fed. The U. And most of this deficit is being monetized by the Federal Reserve, by creating money to buy Treasuries from primary dealers and elsewhere on the secondary market, to ensure that this explosive supply of Treasuries does not overwhelm actual demand. The dichotomy between quantitative easing that central banks around the world are doing, and the quantitative tightening that Bitcoin just experienced with its third halving, makes for a great snapshot of the difference between scarcity or the lack thereof.
Dollars, euro, yen, and other fiat currencies are in limitless abundance and their supply is growing quickly, while things like gold and silver and Bitcoin are inherently scarce. This is an era of near-zero interest rates, even negative nominal interest rates in some cases, and vast money-printing.
The fast creation of currency has demonstrably found its way into asset prices. Stock prices, bond prices, gold prices, and real estate prices, have all been pushed up over the past 25 years. In early May , Paul Tudor Jones became publicly bullish and went long Bitcoin, describing it as a hedge against money-printing and inflation. Smaller hedge funds have already been dabbling in Bitcoin, and Tudor Jones may be the largest investor to date to get into it.
There are now firms that have services directed at getting institutional investors on board with Bitcoin, whether they be hedge funds, pensions, family offices, or RIA Firms, by providing them the enterprise-grade security and execution they need, in an asset class that has historically been focused mainly on retail adoption.
Even an asset manager as large as Fidelity now has a group dedicated to providing institutional cryptocurrency solutions. And speaking of retail, the onboarding platforms for Bitcoin are getting easier to use.
When I first looked at Bitcoin in , and then again in , and then again in early , it was like a new era each time in terms of the usability and depth of the surrounding ecosystem. Some major businesses are already on board, apart from the ones that grew from crypto-origins like Coinbase. Robinhood, which has enjoyed an influx of millions of new users this year, has built-in cryptocurrency trading, making an easy transition for Robinhood users if they happen to shift bullishness from stocks to cryptos.
If a few percentage points of a portfolio are allocated to it, there is a limited risk of loss. What will happen in this cycle?
But the more I study the way the protocol works, and by observing the ecosystem around it over the years, I am increasingly bullish on it as a calculated speculation with a two-year viewpoint for now, and potentially for much longer than that. Plenty of people have strong feelings about where to buy it or what companies they want to do business with; ultimately it comes down to your country of residence, how much you want to buy, how hands-on you want to be with it, and whether you want to accumulate it or trade it.
There are trade-offs for convenience, security, and fees for various choices. Exchanges like Kraken and Binance and Coinbase are popular entry points for people into buying some Bitcoin, especially if they want to trade it. Do your homework, and find one that meets your criteria that operates in your jurisdiction. I think Swan Bitcoin is great for accumulating Bitcoin, especially if you want to dollar-cost average into it, and I use it myself.
I have a referral code as well: folks that sign up at swanbitcoin. It can be stored for free with their custodian, or automatically transferred to your wallet. For many people, this is the method I would personally recommend checking out. The Grayscale Bitcoin Trust GBTC is a publicly-traded trust that holds Bitcoin, and is therefore a hands-off method that can be purchased through an existing brokerage account. Ultimately, it comes down individual needs.
In general, if you want to minimize fees and maximize security for a large Bitcoin purchase, then maintaining your own Bitcoin wallet and private keys is the rock-solid way to go, but has a learning curve. If you want to just buy a bit and maintain some exposure and maybe trade it a bit, some of the exchanges are a good way to get into it.
For folks that want to have some long-term exposure to it through dollar-cost averaging, Swan Bitcoin is a great place to start. Get the insider newsletter, keeping you up to date on market conditions, asset allocations, undervalued sectors, and specific investment ideas every 6 weeks. Join the Free Investing Newsletter Get the insider newsletter, keeping you up to date on market conditions, asset allocations, undervalued sectors, and specific investment ideas every 6 weeks. The reward will continue to halve every four years until the final bitcoin has been mined.
In actuality, the final bitcoin is unlikely to be mined until around the year However, it's possible the bitcoin network protocol will be changed between now and then. The bitcoin mining process provides bitcoin rewards to miners, but the reward size is decreased periodically to control the circulation of new tokens. It may seem that the group of individuals most directly affected by the limit of the bitcoin supply will be the bitcoin miners themselves. Some detractors of the protocol claim that miners will be forced away from the block rewards they receive for their work once the bitcoin supply has reached 21 million in circulation.
But even when the last bitcoin has been produced, miners will likely continue to actively and competitively participate and validate new transactions. The reason is that every bitcoin transaction has a transaction fee attached to it. These fees, while today representing a few hundred dollars per block, could potentially rise to many thousands of dollars per block, especially as the number of transactions on the blockchain grows and as the price of a bitcoin rises.
Ultimately, it will function like a closed economy , where transaction fees are assessed much like taxes.
It's worth noting that it is projected to take more than years before the bitcoin network mines its very last token. In actuality, as the year approaches, miners will likely spend years receiving rewards that are actually just tiny portions of the final bitcoin to be mined. The dramatic decrease in reward size may mean that the mining process will shift entirely well before the deadline. It's also important to keep in mind that the bitcoin network itself is likely to change significantly between now and then.
Considering how much has happened to bitcoin in just a decade, new protocols, new methods of recording and processing transactions, and any number of other factors may impact the mining process.
Bitcoin Magazine. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Bitcoin Basics. Bitcoin Mining. How to Store Bitcoin. Bitcoin Exchanges. Bitcoin Advantages and Disadvantages. Bitcoin vs. Other Cryptocurrencies. Bitcoin Value and Price. Cryptocurrency Bitcoin. Table of Contents Expand. Bitcoin Mining Rewards. Effects of Finite Bitcoin Supply. Special Considerations. Key Takeaways There are only 21 million bitcoins that can be mined in total. Once bitcoin miners have unlocked all the bitcoins, the planet's supply will essentially be tapped out.
Once all Bitcoin has been mined the miners will still be incentivized to process transactions with fees. Article Sources.