"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.
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)