What does bitcoin halving mean and what is it done for?
What does bitcoin halving mean and what is it done for? In our article we provide thorough explanation.
So, bitcoin is created as a reward to miners for adding blocks to the blockchain and thus maintaining the network. Since the costs of mining are pretty high, the miners would typically sell their bitcoin straight away, thus releasing new bitcoin into ecosystem.
Unlike fiat currencies that central banks can print as much as they want, the total supply of bitcoin is limited to 21 Million. Moreover, Satoshi Nakomoto set a rule for bitcoin protocol, that the reward for generating a new block will decrease by 50 per cent every 210 000 blocks. This means the amount of bitcoins released every day will decrease by half around every 4 years.
This is Nakomoto’s way of battling inflation. If the coins are created too quickly, or there’s no end to the number of bitcoins that can be created; eventually there will be so many bitcoins in circulation that they would have very little value.
Previously the reward per block was 50 bitcoins, but two halvings already took place and currently each block generated brings 12.5 bitcoins. In 2020 the reward will decrease to 6.25 bitcoins. Halving influences miners since some will come to the conclusion that the costs for mining are not worth the decreased reward, while others will stick to mining given the increased demand for the coins.
The rate of generating blocks is around 6 blocks per hour, so currently around1800 bitcoins are released into ecosystem daily, and after halving which will take place in May 2020 the network will release just 900 coins per day.
We still have over a century of guaranteed incentive for miners to participate in the network, and for the market to figure out how much bitcoin is worth.
As a rule, halving increases the bitcoin value in the long run. During the previous halving of bitcoins in 2016 there was a slow but steady increase in price of bitcoins during around a year.