What Happens When ALL 21 Million Bitcoin Are Mined? | Michael Saylor

Summary

The 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

• 🔒 Bitcoin's security is underpinned by a massive, decentralized network of miners who contribute to its hash rate.
• 💰 Miners are incentivized by both the Bitcoin block reward and transaction fees, which subsidize their operations.
• ⏳ 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.
• 🏦 The scarcity of block space will drive up transaction fees, as users compete to have their transactions included in the next block.
• 💼 High-value transactions, such as real estate sales, could potentially justify substantial transaction fees to ensure timely processing.
• 📈 As the Bitcoin network grows, the transaction fees are expected to rise, reflecting the increasing value of the transactions being secured.
• 🛡️ 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.
• 💡 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.
• 🌍 The global abundance of 'wasted' or 'stranded' electricity provides opportunities for mining operations, even in times of low profitability.
• 🛠️ 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

00:00

🔒 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.

05:01

🌐 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.

Keywords

💡Decentralized Network

A decentralized network is a distributed system where operations are handled by multiple nodes without a central authority. In the context of the video, Bitcoin operates on such a network, where miners contribute to the security and verification of transactions. The script mentions 'massive diversified decentralized network of Bitcoin security data centers,' emphasizing the strength of Bitcoin's security through its distributed nature.

💡Miners

In the script, 'miners' refer to participants in the Bitcoin network who use their computational power to validate transactions and add them to the blockchain. They are crucial for the security and integrity of the network, as they 'drive up massive hash rate to secure the network.' Miners are rewarded with block rewards and transaction fees for their services.

💡Hash Rate

Hash rate is a measure of the computational power that the Bitcoin network is using to validate transactions and create new blocks. The script discusses how miners contribute to a 'massive hash rate,' which is essential for the security of the Bitcoin network. A higher hash rate makes it more difficult for any single entity to take control of the network.

💡Block Reward

The block reward is the new Bitcoin that is created and awarded to the miner who successfully adds a new block to the blockchain. The script explains that 'they're subsidized by a Bitcoin block reward,' which is a financial incentive for miners to continue their work. It also mentions the eventual reduction of block rewards after the first 30 years of the network's existence.

💡Transaction Fees

Transaction fees are the fees paid by users to miners for including their transactions in the blockchain. The script discusses how these fees will become more significant as the block reward decreases, stating that 'the transaction fees will grow and are growing over that period.' These fees are essential for maintaining the incentive for miners to secure the network.

💡Scarce Block Space

Scarce block space refers to the limited amount of data that can be included in each block of the Bitcoin blockchain. The script mentions that there is a limit to how many transactions can be processed per hour, which creates competition among users to have their transactions included, thereby driving up the transaction fees.

💡Bidding for Transaction Inclusion

The concept of bidding for transaction inclusion is where users offer higher fees to miners to prioritize their transactions in the next block. The script gives an example of someone wanting to move a large sum of money, like a billion dollars, and being willing to 'bid a lot of money' to ensure their transaction is processed quickly.

💡Sunk Cost

A sunk cost is a cost that has already been incurred and cannot be recovered. In the script, it discusses how once a miner has invested in Bitcoin mining equipment, it is a sunk cost that cannot be repurposed. This means that even if the transaction fees are not high, the miner would still operate the equipment because 'a million a year is still better than nothing.'

💡Stranded Electricity

Stranded electricity refers to electricity that is generated but not used due to lack of demand or transmission infrastructure. The script mentions that a third of all the electricity in the world is 'valueless' or wasted, and that Bitcoin mining can utilize this excess power, turning a wasted resource into a benefit for the network.

💡ASIC

ASIC stands for Application-Specific Integrated Circuit, which is a type of hardware that is specifically designed to perform a particular task or set of tasks. In the context of the video, ASICs are used for Bitcoin mining and represent a 'one-way investment' in the network's security, as they cannot be repurposed for other uses.

💡Miner's Incentive

Miner's incentive refers to the motivation for miners to continue participating in the Bitcoin network. The script explains that even when the transaction fees are not high, the sunk cost of the mining equipment and the availability of stranded electricity provide an incentive to keep mining. This ensures the continuous operation and security of the Bitcoin network.

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