Dear followers and readers! What exactly is a Bitcoin block halving?
With a Bitcoin block halving is meant that the reward of miners is halved. Because of the mining proces new Bitcoin always comes into circulation. Now at this moment miners get 12.5 Bitcoin as a reward for every block that they add to the Bitcoin blockchain. The Bitcoin blockchain is halved every 4 years. The next halving is expected in May 2020.
One of the most important features of Bitcoin is that it is limited to just under 21,000,000 million bitcoin. This allows the creation of the number of Bitcoin to be predicted accurately. Another important feature is the Bitcoin block halving. This ensures that this approximately 21,000,000 Bitcoin is acquired.
In this post I will cover:
- How are new Bitcoins created?
- What is a block halving?
- How does the block halving affects the miners?
- What happens after a block halving?
- Does a block halving have any effect on inflation?
- What happens if the very last Bitcoin block has been halved?
How are new Bitcoins created?
What is a Block halving? To learn what this is it is important to know how new Bitcoins are created.
Bitcoins are released at a predictable and at a certain pace. A block is mined by miners and the Bitcoin that is released is the reward for these miners. Then they sell the bitcoins and this will bring them into circulation.
They also ensure that transactions are verified in a block and this is then added to the blockchain. This process takes a lot of energy and is also called Proof of work. For more information you can read more about this in my previous post. When Bitcoin was just created, this reward was 50 Bitcoins per block.
What is a block halving?
The Bitcoin block halving is the moment when the reward for miners is halved. This halving will take place every 210,000 blocks. This happened 210,000 blocks later and then also at block 420,000.
Miners add a block approximately every 10 minutes. Based on this information you can say that a Bitcoin block halving takes place approximately every 4 years. Furthermore, it is programmed in the code that the reward cannot be less than 1 satoshi (1/100 million of a bitcoin). This way you can calculate that there will be 33 halvings till the last Bitcoin is mined.
How does the block halving affects the miners?
The bitcoin block halving ensures that the payment in bitcoin is halved every four years. In this way, miners know precisely on the day when the reward in bitcoin is halved. This way the Bitcoin block halving provides more certainty for the miners.
But there can also be uncertainty due to mine equipment being unstable and the computing power on the network. But because of the halving, there won't just be a halving of the price due to the halving. Does the demand remain constant and is the supply growth slowing down? Then an increase in the price may arise. But the role of transaction costs can also play a major role. This way the miners are reimbursed in a normal way.
What happens after a block halving?
If the block halving has taken place, the number of Bitcoins that the miners receive for finding a block will be halved. Previously they received 50 Bitcoins for each block, then 25 Bitcoins per block, then 12.5 bitcoin per block and now at the fourth block there will be halved to 6.25 Bitcoins per block.
There are traders who think that the block halving has a certain influence on the price of Bitcoin. In 2012, for example, the first halving took place and a year later, Bitcoin reached its all-time high. This also happens after the halving in 2017.
How is that possible? The part that is mined to Bitcoin is often sold immediately to cover the costs of mining. If the halving has taken place, the sales will decrease. This could then have a positive effect on the price. No one can predict whether or not it will happen at the fourth halving.
Does a block halving have any effect on inflation?
Satoshi Nakamoto has made everything clear in advance:
- It is certain that a maximum of approximately 21,000,000 Bitcoins will be mined.
- And the last part of the Bitcoin will be mined around 2140.
This ensures that inflation is transparent at Bitcoin. Inflation will only decrease, which is not the case with monetary inflation. This would theoretically increase the value of the Bitcoin.
What happens after the very last block halving?
After the last Bitcoin block halving, the miners no longer receive a block reward. The transaction costs will the ongly thing they will earn. The transaction costs will become increasingly important.
Will the transaction costs become more expensive? This does not necessarily have to happen. Because there are various developments going on to control the transaction costs. You should think of the Lightning Network for example. This network ensures that transactions are executed on a second layer of the blockchain and not on the blockchain itself.
It is possible that in the future smaller transactions will be done on the network. For example, the transaction costs of the Bitcoin could be kept manageable. But this is all in the future that we are not even going to experience.
Thank you for reading. And until next time in one of my posts.