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An explanation of a Bitcoin Halving

An explanation

Mining awards for bitcoins are reduced by half every four years until all 21 million bitcoins have been virtually mined. Inflation-resistant bitcoins are made scarce by the halving mechanism.

Bitcoin can’t be created endlessly even though it is a digital currency. Its value is determined by its verifiable scarcity. Scarcity is fundamental to the Bitcoin protocol. Bitcoin will always exist at 21 million units.  A further reduction of half a bitcoin every four years will be made to the number of new coins added to the network. Halving is a term used to describe this concept.

Virtual mining began in February of 2020, adding 12.5 bitcoins every 10 minutes. Those coins were halved to 6.25 in May. This number is expected to drop to around 3.125 by the end of 2024. After 21 million coins are mined, the process will be repeated.

How important is Bitcoin halving?

A Bitcoin Halving will likely boost the value of Bitcoin in the long run by reducing supply (assuming constant demand levels). The value of fiat currencies declines over time through inflation, which is why a Coke was a dime in the 60s. Bitcoin uses halving to maintain scarcity, and scarcity is one of the reasons why millions of people are interested in Bitcoin.

What is it all about?

It has been suggested that Bitcoin is similar to gold – which is a rare, valuable asset that is likely to resist inflation. The key difference between gold and bitcoin is that bitcoin is digital and its exact scarcity is known and verifiable by anyone. Approximately 3 swimming pools could fit all of the gold ever mined, according to the United States Geological Survey, but it is not known how much gold remains on the Earth. The fact is that new gold discoveries happen every year, meaning the gold supply is unpredictable. On the other hand, Bitcoin was created as a finite resource and its supply was known in advance: there will never be more than 21 million, and — as of late 2020 — there will only be 2.5 million left to mine.

As with gold, bitcoins are mined, but the process is done electronically by a worldwide network of computers competing to verify bitcoin transactions.

Miners receive bitcoin as a reward. Within ten minutes, 12.5 bitcoins were distributed in early 2020. As of May, the reward per 10 minutes has been halved, meaning that 6.25 bitcoins will be rewarded every 10 minutes.

Mining rewards, which are referred to as “block rewards”, are roughly halved approximately every four years. Around the year 2140, all 21 million bitcoins will be mined.

Bitcoin can never be created again. In contrast, fiat currencies can be printed by the government or central bank at its discretion, potentially resulting in inflation.

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