Block rewards are not the only way to earn from mining bitcoins. You also earn transaction fees of processed transactions. As block rewards dissipate, transaction fees will naturally increase to compensate.

This is the answer I was looking for. Thank you.

Fees won't naturally increase. If I can mine profitably at the minimum amount of transactions enforced by the protocol I'll raise the difficulty as I bring on more miners and squeeze out people relying on transactions to profit. Eventually someone will come along who does mining as a loss leader (a bank?) and will offer transaction fee-less transactions to customers which will squeeze out the last of the profitable miners. Competition will only push the mining profit lower and lower.

Alternatively, a really busy Bitcoin network will be limited by the maximum block size and people will pay for priority inclusion in a block. However, this limitation is totally artificial and doesn't scale with the increasing amounts of bandwidth and disk space available. Miners have an incentive to "suck up" to Bitcoin users - without them their mining has no point. If the Bitcoin users demand bigger block sizes so they don't have to pay transaction fees I think miners will have to take the partial hit from bigger blocks rather than the total hit of lack of blockchain use.

"If the rewards go down over time, eventually it won't be profitable to mine bitcoin."

Yes.

The idea is the following: If the amount that can be mined per unit of computation is decreased, then fewer will be created. And if there are less of them being created and more of them demanded, then their value increases. So this balances out. Also, computational power gets cheaper with the passage of time.

The largest caveat I see there is the part about more of them being demanded. (or equivalently, the market equilibrium of demands for bitcoin holdings shifting towards greater demand)

I detect confusion here, and I'd recommend you take some time on the bitcoin wiki to clarify:

> "If the rewards go down over time, eventually it won't be profitable to mine bitcoin." > Yes.

No. Because the other part of mining is that you get transaction fees for it. Mining isn't a luxury, it's necessary for the network to function (otherwise double-spending isn't prevented). So as time goes on and less coins can be made by mining, transaction fees will increase to compensate and keep mining profitable.

> Also, computational power gets cheaper with the passage of time.

But, mining does not get cheaper because the network (by design) adjusts the mining difficulty to keep the incoming block rate constant. So in relative terms, mining will never become significantly more or less expensive with time.

> The largest caveat I see there is the part about more of them being demanded.

Not a problem. This is solved because bitcoins are infinitely divisible (up to 8 decimal places currently and this can be extended if needed). So if there's more demand, the value of coins increases but you can still trade them in whatever meaningful quantities you like. This isn't something you can do with cents, but you can trade one millionth of a BTC just fine.

My points were purely economic. The OP was just asking a simple economic question, and I gave a simple answer. It doesn't need to be explained in the mechanisms employed by the design of bitcoin.

"Not a problem. This is solved because bitcoins are infinitely divisible"

I detect confusion here.

I'm not talking about lack of divisibility, but a lack of demand. Increased divisibility doesn't facilitate demand. It's just a nice feature of something that could be money or commodity.

Water is infinitely divisible but that doesn't get it demand. If people don't exercise demand for bitcoin, (as in, they don't want it) divisibility doesn't solve the problem.

I haven't seen any evidence that transaction fees will increase. It looks more likely that both block rewards and transaction fees will approach zero, mining will become unprofitable for everyone, and then difficulty will drop.