What Happens When ALL 21 Million Bitcoin Are Mined? | Michael Saylor
Summary
TLDRThe video script discusses the robust security of Bitcoin, underpinned by a decentralized network of miners who contribute to a high hash rate. It explains how miners are incentivized by block rewards and transaction fees, the latter of which will become more significant as block rewards diminish. The script also highlights the economic dynamics of transaction fees, comparing them to real estate commissions, and suggests that mining will continue to be profitable even with reduced transaction fees due to the sunk cost of mining equipment and the availability of cheap or even negative-cost electricity in certain scenarios. It concludes by emphasizing the resilience and sustainability of Bitcoin's security model, driven by technological investment and the one-way nature of ASIC manufacturing.
Takeaways
- đ Bitcoin's security is underpinned by a massive, decentralized network of miners who contribute to its hash rate.
- đ° Miners are incentivized by both the Bitcoin block reward and transaction fees, which subsidize their operations.
- âł The block rewards will diminish over time, with 99% of Bitcoin expected to be mined by 2035, but transaction fees are anticipated to increase due to limited block space.
- đŠ The scarcity of block space will drive up transaction fees, as users compete to have their transactions included in the next block.
- đŒ High-value transactions, such as real estate sales, could potentially justify substantial transaction fees to ensure timely processing.
- đ As the Bitcoin network grows, the transaction fees are expected to rise, reflecting the increasing value of the transactions being secured.
- đĄïž The security of the Bitcoin network is self-sustaining, with miners continuing to operate even if transaction fees are not high, due to the sunk cost of their investment in mining equipment.
- đĄ The efficiency of mining operations is expected to improve over time, reducing the cost of security as a percentage of the value protected by the network.
- ⥠The 'one-way trade' nature of Bitcoin mining equipment investment means that once invested, the equipment is dedicated to Bitcoin mining and cannot be repurposed.
- đ The global abundance of 'wasted' or 'stranded' electricity provides opportunities for mining operations, even in times of low profitability.
- đ ïž The ongoing demand for Bitcoin mining equipment and the potential for manufacturing cost reductions ensure the network's security remains robust and scalable.
Q & A
What makes Bitcoin secure according to the transcript?
-Bitcoin is secure due to its massive, diversified, decentralized network of miners who contribute to the network's security by driving up the hash rate. These miners are subsidized by the Bitcoin block reward and transaction fees.
What is the role of miners in the Bitcoin network?
-Miners secure the Bitcoin network by contributing to the hash rate, which is a measure of the computational power securing the blockchain. They are rewarded for this through block rewards and transaction fees.
What is the significance of the Bitcoin block reward and how does it change over time?
-The Bitcoin block reward is a subsidy for miners that helps secure the network. It is set to run out after the first 30 years of the network's existence, meaning by 2035, 99% of Bitcoin will have been mined, and the block reward will become less significant as transaction fees take over as the main incentive for mining.
How does the scarcity of block space affect transaction fees?
-The scarcity of block space, which can process a limited number of transactions per hour, leads to competition among users to have their transactions included in the next block. This can drive up transaction fees, especially for high-value or urgent transactions.
What is the analogy made between Bitcoin transaction fees and real estate commissions?
-The analogy compares the transaction fees in Bitcoin to commissions in real estate, where there is no block reward equivalent to free real estate; instead, all parties work on the basis of commissions or fees for services rendered.
How do transaction fees in the Bitcoin network compare to the cost of security?
-Currently, the cost of security for the Bitcoin network, paid to miners, is around 1% of the asset class's value. It is expected that as the network evolves, the fees will trend to be less than this percentage, potentially becoming a fraction of a percent.
Why would someone continue to mine Bitcoin even if transaction fees are not high?
-Miners would continue to mine Bitcoin due to the sunk cost of their investment in mining equipment. Even if the fees are not high, running the equipment for a lower profit is better than not running it at all, especially if the electricity cost is negligible.
What is the concept of a 'one-way trade' in the context of Bitcoin mining?
-A 'one-way trade' refers to the irreversible investment in Bitcoin mining equipment. Once invested, the equipment cannot be repurposed for other uses, making it a commitment to the Bitcoin mining process regardless of market conditions.
How does the availability of 'free' or 'negative cost' electricity impact Bitcoin mining?
-The availability of 'free' or 'negative cost' electricity, where power is either wasted or producers are paid to take it, provides an opportunity for Bitcoin miners to operate at very low or no cost, making mining profitable even with lower transaction fees.
What happens to the Bitcoin mining equipment when it becomes obsolete or the market crashes?
-When Bitcoin mining equipment becomes obsolete or the market crashes, the equipment's price can compress significantly. This makes it affordable for buyers with access to cheap or free power, ensuring the continuation of mining operations.
How does the manufacturing cost of mining equipment evolve over time?
-Over time, the manufacturing cost of mining equipment is expected to decrease significantly due to technological advancements and economies of scale, making it cheaper to produce and maintain the security of the Bitcoin network.
Outlines
đ Bitcoin's Decentralized Security and Transaction Fee Dynamics
The first paragraph discusses the security of Bitcoin, which is attributed to its decentralized network of miners who contribute to a high hash rate. These miners are incentivized by block rewards and transaction fees. The block rewards are set to diminish after the first 30 years, but transaction fees are expected to increase due to the limited block space available for processing transactions. The scarcity of this space can lead to bidding wars for faster transaction processing, especially for high-value transactions. The speaker also compares the transaction fee economy to real estate and financial markets, where commissions and fees are standard. The security cost for Bitcoin, currently around 1%, is expected to decrease as the network becomes more efficient and the value of transactions increases. The sunk cost of mining equipment and the potential for free or near-free electricity further ensure the continuous operation of mining, even if transaction fees decrease.
đ The Resilience and Evolution of Bitcoin Mining
The second paragraph delves into the resilience of Bitcoin mining, highlighting how the price of mining equipment can plummet while the demand for mining remains. The speaker explains that as mining operations on expensive electricity become unfeasible, their equipment is often repurposed by those with access to cheaper or even free power sources, such as renewable energy or situations where energy is considered a waste product. This dynamic ensures a continuous market for used Bitcoin mining equipment. The speaker also touches on the inevitability of mining equipment becoming obsolete and the role of semiconductor manufacturers in providing new, cost-effective equipment. The paragraph concludes with a reflection on the engineering design of Bitcoin, which encourages investment in technology to protect economic rights.
Mindmap
Keywords
đĄDecentralized Network
đĄMiners
đĄHash Rate
đĄBlock Reward
đĄTransaction Fees
đĄScarce Block Space
đĄBidding for Transaction Inclusion
đĄSunk Cost
đĄStranded Electricity
đĄASIC
đĄMiner's Incentive
Highlights
Bitcoin's security is underpinned by a massive, diversified, decentralized network of miners.
Miners are subsidized by Bitcoin block rewards and transaction fees.
The block rewards will run out after the first 30 years of the network, transitioning to a fee-based system.
Transaction fees are expected to grow due to the scarcity of block space.
High demand for transaction bandwidth can lead to bidding wars for block inclusion.
The analogy of paying high transaction fees for real estate in New York City to illustrate the fee economy.
Transaction fees in Bitcoin are expected to increase from a few dollars to potentially thousands.
The cost of security for Bitcoin is currently around 1% of the asset class value.
Efficiency improvements in mining could reduce the security cost percentage over time.
Once invested in mining equipment, the sunk cost incentivizes continuous operation regardless of fee levels.
The discussion of electricity costs and how 'free' or negative-cost electricity impacts mining operations.
The concept of a 'one-way silicon ratchet' in the context of Bitcoin mining and its persistence.
The inevitability of mining equipment depreciation and the market's response to it.
The potential for mining equipment to become extremely cheap as manufacturing technology advances.
The engineering design of Bitcoin as an elegant system defended by technology and hardware investment.
The role of Bitcoin mining in defending economic rights against theft.
The discussion on the resilience of the Bitcoin network even in a bear market due to the hash rate's persistence.
The potential for mining rigs to migrate to locations with free or negative-cost power.
The long-term outlook of Bitcoin mining equipment and the role of semiconductor manufacturers.
Transcripts
bitcoin's secure because it has this
massive Diversified decentralized
network of Bitcoin uh security data
centers which we call miners but they're
really driving up massive hash rate to
secure the network they are uh
subsidized by uh a Bitcoin block reward
and they're also subsidized by
transaction fees the block rewards for
the most part run out after the first 30
years of the network you know between
2009 and you know and
[Music]
2035 we will have mined 99% of the
Bitcoin by
2035 so that's running down but the
transaction fees will grow and are
growing over that period because there's
a scarce amount of block space you can
maybe process 30,000 transactions an
hour and if you want to move your money
or you want to do that transaction
that's a limit you have to put a bid to
get your transaction in the next block
people are going to bid high if I want
to move a billion dollars I'll bid a lot
of money if I need the transaction to
take place I'll bid it up the more
people in the network the more demand
for that transaction bandwidth um what
would you pay to uh to sell $10 million
worth of real estate in New York City
today what you might pay a mill million
dollar you might pay a million dollars
in transaction fees the transaction fee
economy works just fine for Real Estate
right there's no block reward for real
estate people don't just get a bunch of
free real estate every 10 minutes for
being in the real estate business they
all work on the basis of a commission
the same is true in the financial
markets so there'll be commissions and
fees to trade there's a very limited
amount of transaction space the the fee
will go from a few dollars of
transaction action to $30 a transaction
to $300 a transaction to 3,000 to 30,000
to
300,000 and
and that being the case there's no
reason to think the mining ever stops it
will be more
efficient as of like in a world right
now I guess you have a trillion doll
asset class and the Bitcoin miners get
paid 10 billion a year so the cost for
the
security right 10 billion a year is is
like 1% right the fees will Trend to be
less than that and so that that 1%
security cost will probably become half
a percent a third of a percent a quarter
of a percent a tenth of a percent but
there's no reason why the revenues can't
go up while uh the value that's uh
that's protected goes up and the
incentive is always going to be to run
the equipment even if uh the transaction
fees aren't high once you've invested
$100 million in Bitcoin mining equipment
it's a sunk cost you can't repurpose it
to anything else if your electricity is
free and if you have $100 million of
equipment then it doesn't matter whether
you make a million a year 10 million a
year 100 million a year you would run it
for a million a year you would run it at
a 99% lower f price because a million a
year is still better than nothing A year
the electricity is worth nothing to you
a third of all the electricity in the
world is valueless it's it's wasted
stranded we've got too much like you
have a
damn nobody wants to buy electricity
from the dam the water just flows over
the
dam right or you can mine
Bitcoin so the the the the genius of the
network is everybody that gets into
Bitcoin mining does a oneway trade you
take a billion dollars you invested in
Bitcoin mining you can't get your money
out you can go bankrupt
the equity holder can go bankrupt then
the Creditor gets the Bitcoin mining the
credit the debt holder can go bankrupt
then the electricity company the power
company gets the mine the power company
can go bankrupt the nation state The
Sovereign that owns the power company
will own it if you notice electricity
companies never go bankrupt maybe
they're owned by the state or they're
owned by the country but people decide
they want electricity and they'll keep
running them there's no way to turn them
off and that's why even in a crypto
winner or bare Market the hash rate just
keeps going up it's a it's a one-way
silicon
ratchet
and it's like got an 8 to 10 year
natural
frequency it's like eight years after
the business became awful my equipment
starts burning out but you see even if
the equipment burns out like people
bought they would buy Bitcoin mining
rigs for $10,000 at the height of the
bull market and then the market price
crash and then they're buying the same
rig for $1,500 so the price of the
equipment will compress by
90% the price of electricity will go to
zero How does it go to zero everybody
that's just mining on expensive
electricity goes out of business so when
they go out of business where does their
equipment go it migrates to the next
buyer who's the buyer of Last Resort
someone that has free Power there are
actually places where there's negative
where the power is uh negative cost
where people will pay you to take the
electricity you know that that happens
on um solar and wind grids where uh the
sun is shining the wind is blowing and
we're going to burn out the grid unless
you take the power wow right you see
yeah you know and it happens if I'm
flaring methane gas or if I'm flaring
natural gas the regulator says to you if
you don't actually use this if you don't
cap the flare and use this then you have
to write off and close in the well and
then you take a $100 million write off
there's always going to be people that
are going to want to mine Bitcoin and
they will there will always be a market
for Bitcoin equipment that's used and
you you know you want to be a doomsdayer
well okay 10 years later all the Bitcoin
mining rigs all burn out what happens
well what happens is the big
semiconductor manufacturers like bitm
already have the engineering specs they
will sell this equipment at a at a
variable margin of 3% right you know
what does it cost for a 386 chip you
know or what does it cost for for 30y
old computer right at some point you
manufacture it for 5% of the original
cost it gets insanely cheap like they
put they put computer chips and greeting
cards now right M and so you're working
your way down this manufacturing curve
and this Moors law it's just like the
truth is guns are cheap they're too
cheap right you could buy a for $100
right that that works what you have here
is a network defended by technology and
the technology is a one-way function and
the hardware is one-way investment you
can't
unknow how to you know how to set off an
explosive you can't unknow how to build
an Asic but now that you know how to
manufacture it and now that you own it
what can you do with it there's only one
thing you can do with it the only thing
you can do with it is to is provide
security for Bitcoin so so it's a quite
elegant engineering design that I entice
so many Engineers to invest so much
money to Simply defend my economic
rights against those who would steal
from me
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