Bitcoin’s next block reward halving occurs in less than 50 blocks, or about 8 hours

posted 3 months ago
Bitcoin’s 3rd ever halving occurs today. The halving relates to Bitcoin’s “new supply schedule”, that is, the rate (or flow) of newly created Bitcoin’s that enter the market, this rate of newly created bitcoins entering the market has been cut in half.

The math is clear, 1,800 Bitcoins have been “flooding” the market every day for the past ~4 years, that is, until today. Now, the miner's daily reward for producing Bitcoin blocks (securing the network, as they process Bitcoin transactions) is only 900 bitcoins, that is, until the next halving, approximately 4 years from now.

Specifically, the Bitcoin miners had received 50 BTC per block from Jan 2009 (Bitcoins birthday aka 1st block aka “Genesis block”) and then on Nov 2012 (a 25 BTC reward per block existed) and then 12.5 BTC => and now it is 6.25 new bitcoins that are rewarded to Bitcoin miners per block, and are added to the blockchain (this occurs approximately every 10 minutes.)

These predictable fundamentals that are hardcoded into Bitcoins protocol, by Satoshi, represent a fixed (capped) supply schedule that compresses Bitcoin’s supply (87.5% of all BTC have already been mined) so miners are now “competing” for the remaining 12.5% of the 21 million bitcoins which are being “rewarded” to miners, now at the rate of 6.25 BTC per block (until the next halving which occurs every 210,000 blocks or ~4 years.)

The halving milestone, economically, relates to how susceptible a currency is to being weakened by inflation. For example, the US FED (main government bank) “targets” a 2% annual inflation rate. Which basically means the rate at which they print new money should be less than 2% per year (ignoring old currency that is destroyed etc.)

Today, Bitcoin officially achieves the 2% (US Federal bank’s inflation target rate) by going from a 3.64% to 1.79% annual inflation rate (with only 900 Bitcoins being added to the network per day (at a rate of 6.25 BTC per block) which is *half* of the previous 4 years reward per block. It’s worth noting, an average of 144 blocks are mined every day (6.25 BTC x 144 = 900 BTC.)

The reduction in the rate BTC is created is a core feature of the Bitcoin protocol, this process of diminishing supply cuts the new supply of bitcoins in half. This predetermined scarcity contributes to defining Bitcoins value as currency.

Every 10 minutes (on average, EG. it could be 6 mins or 60 mins) a Bitcoin block is added to the blockchain. Miners need incentives, they need money to operate, and they are not running expensive ‘electricity guzzling’ computers for their health. Nakamoto programmed the block reward to decrease over time. a sudden decline in rewards (reduction in Bitcoin’s minting rate) affects the network. Nodes (miners) which process Bitcoin transactions (solve equations) are seeing their reward get cut in half. Fortunately they are also compensated via transaction fees, which incentivize them to secure the Bitcoin network (EG prevent double spend attacks, process all transactions.) This revenue source is important as miners are seeing their BTC rewards per block cut in half, and if their efficiency (hash rate) and costs to operate (mining equipment and electricity) stay the same, some miners operating on thin margins will no longer be profitable and, for example, they may quit operating as a Bitcoin miner.

Regardless, Bitcoin’s price is ultimately a function of supply and demand, and if supply has been => 1,800 bitcoins enter the market everyday (and price has been staying steady) then this indicates there is demand for 1,800 BTC per day. So if now there are now only 900 BTC entering the market daily, and if demand stays the same, the price would increase (all things being equal, in a vacuum, and if markets were completely rational.)

Satoshi said “Coins have to get initially distributed somehow, and a constant rate seems like the best formula.” Nakamoto wrote about the strictly regulated rate of Bitcoin’s inflation, and this feature of being ‘predictably scarce’ is a byproduct of the hard-coded halving event. The Bitcoin supply follows a ‘DIS-inflationary’ curve. This halving officially occurs at block 630,000. The block reward (6.25 BTC) is referred to as a “coinbase transaction,” Block 629,999 will yield 12.5 bitcoins while block 630,000 will yield 6.25 bitcoins and the BTC supply inflation rate officially lowers from 3.72% to 1.79%.

“The supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.” - Satoshi Nakamoto
Tags: blockchain, bitcoin, news