News The Bitcoin halving is happening – here's what you...

The Bitcoin halving is happening – here’s what you need to know


- Advertisment -

Welcome to Hard Fork Basics, a collection of tips, tricks, guides, and advice to keep you up to date in the cryptocurrency and blockchain world.

Something major is happening to Bitcoin BTC in 480 days – the Halvening.

Bitcoin is created when the blockchain rewards the individual (or group) for validating transactions. The network gives Bitcoin to miners for adding blocks to its chain.

This is reimbursement for the costs associated with maintaining the network, like electricity and hardware upkeep. Miners typically sell it immediately to cover their overheads, thus releasing new Bitcoin into the ecosystem.

The Halvening is when the network reduces the reward by 50 percent. Halvenings happen at intervals of 210,000 blocks, which is roughly once every four years.

Bitcoin miners currently receive 12.5 BTC ($43K) each time they successfully mine a block. By the end of May 2020 (the next Halvening) they will instead earn just 6.25 BTC ($21.5K).

While this seems to imply enormous consequences for the network, it’s not all that scary. Let’s take a closer look to see why it shouldn’t worry you.

This is Satoshi’s way of battling inflation

Unlike fiat currencies, which are generally inflationary, the upper limit for Bitcoin‘s supply is 21 million. Once the network reaches that limit, no more Bitcoin can be generated.

The idea behind the constant Halvening is to ensure Bitcoin doesn’t suffer from intense inflation as it’s distributed. Satoshi Nakamoto explained the thought process in an email:

The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase.

Coins have to get initially distributed somehow, and a constant rate seems like the best formula.

Let’s say Satoshi simply launched the Bitcoin network with the full 21 million supply ready to go. There would be little incentive for its value to rise, as supply would likely outweigh demand.

The Bitcoin halving is happening – here's what you need to know