Let’s go ahead and break down the various components of profit within Bitcoin.
First, we’ll start by discussing the block reward, the most significant source of profit currently for miners.
The block reward is a reward that goes to a miner whose block is included in the longest chain.
As of May 2018, the block reward is around 12.5 bitcoins.
As mentioned before, the miner includes a special transaction to themselves: the coinbase transaction.
That transaction is what both allows for the minting of bitcoins and, more importantly, incentivizes honest actors to validate blocks.
To understand better the rationale for the block reward, remember that profit is the primary motivator for any activity, and that a higher incentive for honest behavior leads to a more secure network.
However, we can’t directly punish dishonest behavior: everyone’s anonymous, and there’s no effective way to enforce punishment.
The conclusion is that, if we can’t punish dishonest behavior, we might as well reward honest behavior! Because miners get rewarded for producing blocks, they’re incentivized to produce more blocks.
However, they only get rewarded in bitcoins.
This means that, if a miner sees no value in Bitcoin, they are less likely to spend money on electricity and hardware to get bitcoins.
Because of this, we expect honest mining power to be drawn more heavily to the Bitcoin network.
As you notice on the graph, the Bitcoin supply cap tapers off at a certain point, calculated at 21 million.
This is because the block reward halves every 210,000 (two hundred and ten thousand) blocks, which is approximately 4 years.
It started off at 50 bitcoins per block when Bitcoin first started, then it dropped to 25 after the first two years, and has been halving ever since.
By using a geometric series, the supply cap is calculated to be 21 million bitcoins.
One caveat about this: Not all 21 million bitcoins will be liquid.
For example, approximately 1 million belongs to Satoshi Nakamoto, and it is possible that those bitcoins will never move.
In addition, some private keys have been lost, and some bitcoins have been burned, all decreasing the usable supply cap.