Now that we know a little bit about Bitcoin mining, we can explore the topic of land supply on the Bitcoin island and take a closer look at mining rewards we mentioned in the previous episode.
We have said that the Bitcoin island puts crystals on pieces of land that can be “mined“, thus making the land available for use. By this we mean that only pieces of land with no crystals on it can have an owner, the island will not record ownership for any piece of land that has not been “mined” yet.
As a matter of fact, when the Bitcoin island first came into existence it was entirely covered by crystals – there was not a single piece of usable land available. The first 50 bitcoins of land were mined on January 3, 2009.
In the beginning the whole island was covered with crystals. Not a single piece of land was available for use, thus the “initial supply of usable land” was 0.
The picture above is not precise though. The crystals are not uniformly distributed, each crystal covering the same size of land. Instead there are different sizes of land, each covered by 1 crystal. Specifically, there are exactly:
- 210,000 pieces of land with an area of 50 bitcoins
- 210,000 pieces of land with an area of 25 bitcoins
- 210,000 pieces of land with an area of 12.5 bitcoins
- 210,000 pieces of land with an area of 6.25 bitcoins
- … and so on the geometric series has 33 types of areas, each having half the size of the previous one
Crystals cover different types of areas. There are 33 different sizes of areas, the biggest starting at 50 bitcoin and others being half the size of the previous ones. There are exactly 210,000 pieces of land of each type. In total they add up to 21 million bitcoin.
Bitcoin island structures the mining competition in such a way that the biggest areas (50 bitcoins in size) are mined first, followed by the second biggest areas (25 bitcoin in size), etc. all the way down to the smallest areas (0.00000001 bitcoin in size). That means that for the first 210 000 rounds of the mining game, the reward for the winning miner was always land with an area of 50 bitcoins. The following 210 000 rounds of the game yield a reward of land with an area of 25 bitcoin, and so on..
Since each round of the mining competition lasts around 10 minutes, 210 000 rounds last approximately 4 years. This means that every ~4 years the mining reward decreases by 50%. This event is often referred to as “mining reward halving”.
What we have learned so far also determines the supply function of available land on the Bitcoin island. The total area of land on the island is 21 million bitcoins, however, the supply available for use is slowly moving from 0 to 21 million bitcoins as miners gradually clear out crystals.
A nice chart depicting this progression in detail can be found here.
In the year 2016 an area of over 16 million bitcoin will have been mined and owned (over 75% of the entire island). As the size of mining rewards gradually decreases over time, it will take more than 100 years to mine the remaining 5 million bitcoins.