In the world of cryptocurrency, there is a process called bitcoin halving. It is a process where the number of generated rewards per block are divided so as to maintain the total supply of bitcoin that would not exceed 21 million. Block rewards are actually the main engine of bitcoin mining and that makes it the main power of the bitcoin network operation. Bitcoin halving occurs after every 210,000 blocks and the reward is being reduced by 50 percent for every time in a geometric progression. In the year 2009, the initial block reward was 50 coins but the present block reward is 12.5 coins. By in May 2020, the upcoming bitcoin halving is expected to reduce the block reward to 6.25 coins. Bitcoin halving is a very important process because it is what helps bitcoin to be maintained without any authority and it is the main algorithm of emission control.
According to the co-founder of mining R&D nonprofit, the theory of bitcoin halving is to bring into reality that if miners have less to sell, there will also be less bitcoin available. The block reward is definitely an important component of bitcoin, in the sense that it ensures the security of the leaderless system. In the coming years, as the rewards reduce to zero, the economic incentives underlying bitcoin security may be destabilized.
What is Bitcoin Halving?
Miners make use of expensive electronic equipment to create new bitcoin for circulation in the market as block rewards. After every 210,000 blocks or approximately after every four years, the entire amount of bitcoin that miners can win is halved. When the system started in 2009, it started with 50 coins that were mined every 10 minutes on average. After two halvings, 12.5 bitcoins are presently dispensed. The process is expected to end in the year 2041 with a total of 21 million Bitcoins.
How the Bitcoin Distribution Schedule was Formed
The distribution schedule is being created by the pseudonymous personality, Satoshi Nakamoto. This personality could be an individual or a team but the break is that the personality is unknown so there is no way or no one to explain why this method of choosing new bitcoin was adopted. But some early emails released by Nakamoto opened up some mystery behind this process.
Immediately after the release of the bitcoin white paper, Nakamoto briefly summarized the various ways the chosen monetary policy could work out in the future, thinking of the various circumstances under which a deflation or inflation may arise from all of this. However, Nakamoto didn’t know at the time how many users the currency would have if any.
There was a very little elaboration on why the particular formula for the creation of new coins was chosen.
And it was that coins have to be initially distributed somehow, and a constant rate seems like the best formula.
How Bitcoin Price is Influenced by Halving
Most of the attention that the halving is getting if late is linked to the fact that a lot of people believe that the halving will lead to an increase in price. But the truth is, no one is sure of what will happen.
Since inception, bitcoin has experienced two halvings so far.
Reasons Why Bitcoin Miners gets Rewards
It will be impossible for bitcoin to operate without these block rewards. According to the pseudonymous independent researcher Hasu, there are two parts to having bitcoin operate. But bitcoin’s ledger state would answer the question of who owns what and when.
The first part is “who owns what”? It is solved in the cryptography whereby only a private key owner can spend the bitcoin.
The second part is “when”? This is the big issue and was not solved before the inception of bitcoin. According to Hasu, except it is easy for users to spend their coins more than once and effectively create money from thin air.
Bitcoin Rewards Getting Very Small and Taper Off
This is one major question on the mouth of people, and this is why the gradual decrease in rewards might eventually become an issue. Miners need to get paid for doing what they do. But a major consequence of this decline in block rewards is that it will eventually taper off to nothing. But another way through which miners earn money is from the transaction fees that users pay whenever they send a transaction. Although these fees are optional but without it a user might have to wait for a long time if there is a congested network, and the size of the fee is determined by users of their wallet software. These fees may end up becoming an important incentive for miners when the block rewards fall completely.