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thisCrowd - Audio Read
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An integral part of bitcoin’s core monetary code is the mechanism known as “halving” or “halvening.” This preprogrammed event serves to continually reduce the supply of new bitcoins being released into circulation over time.
Here’s how bitcoin halving works: The blockchain protocol automatically cuts in half the reward that bitcoin miners receive for validating new transaction blocks every 210,000 blocks. This cycle occurs roughly once every four years.
When bitcoin launched in 2009, miners were compensated with 50 BTC about every 10 minutes for each new block processed. After the first halving in November 2012, this payout dropped to 25 BTC. The second halving in July 2016 reduced it to 12.5 BTC, followed by the third halving in May 2020 which saw block rewards cut to 6.25 BTC.
The next highly anticipated halving is projected to take place around April 2024, where the mining reward will shrink to only 3.125 BTC issued every 10 minutes. This cutting in half of rewards will continue roughly every four years until the final bitcoin out of the maximum capped supply of 21 million is released through mining around the year 2140.
By systematically decreasing the issuance rate of new bitcoin over time, the halving process helps reinforce and maintain bitcoin’s value proposition as a deflationary digital asset with controlled monetary policies baked into its base protocol code.
In contrast to fiat currencies which can potentially see uncapped expansion of new money supply by central banks, bitcoin’s total supply is capped and its halving events dictate a diminishing release schedule written into the mathematics undergirding the network.
Beyond controlling the controlled release of bitcoin’s finite supply, the halving mechanism plays a crucial role in incentivizing the global pool of miners who secure the bitcoin network by validating transactions in exchange for newly issued coins.
As mining rewards dwindle, bitcoin’s security economics shift proportionally more towards relying on transaction fees paid by network users for revenue. While an untested model, the system aims to transition smoothly to fee-based miner incentives once all 21 million bitcoins are eventually released fully through block rewards.
Bitcoin’s innovative halving process serves as the backbone enforcing its deflationary economic properties as a decentralized digital currency with a predictable controlled supply and block reward schedule as designed by its pseudonymous creator Satoshi Nakamoto. No other digital or physical asset has this type of monetary supply system hard-coded and automatically executed.
