What is the Bitcoin Half? How is the supply of Bitcoin limited?

Every four years, the amount Bitcoin It is given Crypto Miners will virtually halve Bitcoin in a process known as halving (or halving). Here's why and how it works.

Bitcoin supply limit

To understand Bitcoin halving, we must first understand the theory behind its supply.

Satoshi Nakamoto, the creator of Bitcoin, believed that scarcity could create value where there was none before. After all, there is only one Mona Lisa, only so many Picassos, and only a finite supply of gold on earth.

Bitcoin was revolutionary because for the first time a digital product could become scarce – only 21 million Bitcoins will exist.

The idea of ​​limiting the supply of Bitcoin is met with significant opposition to how fiat currencies like the US dollar work. Fiat currencies were originally created under strict rules: to create one dollar, the US government had to hold a certain amount of gold. This was known as the gold standard.

Over time, these laws were eroded by modernizing economies, and during periods of severe financial stress—such as the Great Depression and World War II—more money was printed to stimulate struggling economies. Over time, these rules evolved into today's system, whereby governments can print money whenever they want (broadly).

Satoshi Nakamoto believed that the fall in the value of fiat money could have disastrous consequences, and therefore, with the code, prevents any party from being able to create more Bitcoin.

What is Bitcoin Half?

It is a hard cap of 21 million coins in the Bitcoin code. It is through which new bitcoins are released. Mining As suspension rewards. Miners do the work of maintaining and maintaining the Bitcoin ledger and are rewarded with newly minted Bitcoins.

However, every four years, the reward for mining is cut in half, and each halving reduces the rate at which new bitcoins enter the supply.– A process that can last until 2140.

A short story

2009 – Bitcoin mining rewards start at 50 BTC per block. 2012 – The first Bitcoin halving reduces mining rewards to 25 BTC. 2016 – In the second half, mining rewards drop to 12.5 BTC. 2020 – In the third half, mining rewards will drop to 6.25 BTC. 2024 – In the fourth half, mining rewards will drop to 3.125 BTC. 2140 – The 64th and final halving has occurred and no new bitcoins have been created.

What's so special about halving?

If a person, group, or government is trusted to establish the money supply, they must also be trusted not to corrupt it. It should be Bitcoin Decentralized And faithless–No one is in control, and no one is trusted. Because Bitcoin is not controlled by one person or group, there must be strict rules on how much Bitcoin is created and how it is released.

By writing down the entire supply and halving the event to the Bitcoin code, the Bitcoin monetary system is essentially set in stone and practically impossible to change. This “hard cap” means that Bitcoin is a type of “hard money” like gold, the supply of which is practically impossible to change.

What will happen to Bitcoin miners?

Bitcoin miners invest their money in specialized mining hardware as well as the electricity needed to run their rigs. The cost of this is offset by their mining rewards, but what happens when their rewards are halved?

As halving reduces rewards, the incentive for miners to work on the Bitcoin network is also reduced, leading to fewer miners and less security for the network.

Because of this, after the last Bitcoin is mined, miners (assuming no major changes have been made to the Bitcoin protocol) are rewarded in the form of transaction fees for maintaining the network.

Currently, transaction fees make up a small portion of mining revenues: miners invest about 900 BTC (about $34.3 million) per day, but receive 60 to 100 BTC (about $2.2 million to $3.8 million) in daily transaction fees. This means that transaction fees currently account for 6.4% of mining revenue – but by 2140, this will reach 100%.

Ben Zhou, CEO of crypto exchange ByBit, said, “Transaction fees will grow inversely with the reverse, and as a compensation, the mining will return.”

The reward system for Bitcoin may change before the last block is mined. Bitcoin is currently in a Proof of work Tesla CEO Elon Musk has drawn criticism for its high energy consumption, a deal that has drawn criticism.

Rival cryptocurrency Ethereum It is in the process of converting from proof-of-work to less energy-intensive. Stock confirmation As a consensus mechanism, the network expects validators to lock, or “stake,” their encryption. According to University College London's Center for Blockchain Technologies, proof-of-stake blockchains use orders of magnitude less energy.

Bitcoin may follow. Originally, in an interview for the German TV show “Galileo,” Swiss crypto broker Bitcoin Suisse founder Nicolas Nicolausen was quoted as saying, “I'm sure once.” [proof of stake] Technology is proven, and Bitcoin can adapt to it.

However, while environmental groups such as Greenpeace encourage the switch to proof-of-stake, it is unlikely that a sufficient number of Bitcoin validators would support any hard fork that turned the network into an alternative consensus mechanism.

Phil Harvey, CEO of Bitcoin mining consulting firm Sabre56, responded to Greenpeace: “There is no possibility that a hypothetical Bitcoin on PoS will be accepted as the first Bitcoin, and it is highly unlikely that it will ever come into existence.” Campaign.

“Bitcoin is used as a secure, decentralized, immutable, uncensored, globally accessible and self-regulated reserve currency linked to Pow. The pillars like half-cycles, mining economics, and block proofs are based on this consensus mechanism,” Harvey said. “Introducing PoS to the Bitcoin network changes its entire identity and value proposition.

Price impact

The debate continues to rage over whether Bitcoin halvings will affect the cryptocurrency's price or whether they are already “overvalued.”

According to the laws of supply and demand, the decreasing supply of Bitcoin should increase the demand for Bitcoin, and possibly increase the price. One theory, known as the stock-to-flow model, calculates a ratio based on the current supply of Bitcoin and how much is entering circulation, with each halving (unsurprisingly) affecting that ratio. However, others have disputed the basic assumptions on which the theory is based.

Historically, after the last half of the events, the year The price of Bitcoin It increased – but not immediately, and other factors played a role.

During the June 2016 halving, the price of Bitcoin was around $660; After the halving, bitcoin continued to trade flat until the end of the month, before plunging as low as $533 in August. But by then, Bitcoin's price had reached an all-time high of over $20,000 by the end of the year, a 2,916 percent increase.

Similarly, with the halving in 2020, bitcoin's price rose from above $9,000 to more than $27,000 by the end of the year—but the price did not break $10,000 in the two months after the halving. It's important to note that other factors influenced Bitcoin's 2020 bull run, particularly the growth of institutional investment like MicroStrategy and PayPal's decision to allow its users to buy and hold Bitcoin.