Bitcoin: The Peaceful Halving

Mining:

Bitcoin mining is the computational process by which transactions are validated and new Bitcoin is generated. In any given newly mined block there is a collection of validated transactions between peers (wallets) and there are new coins generated as a reward for the expenditure of processing power to validate the transactions which is called the “coinbase.” The miner accrues these coins as well as the transaction fees charged by the network. When Bitcoin mining first started the block reward was 50 BTC per block. At the time, this ranged from being worth pennies to a few hundred dollars depending on the price when the coins were mined. It was also much easier to mine Bitcoin in the earlier days because the mining difficulty (aka the complexity of finding the nonce or “solution” to a block) was much lower and people could mine Bitcoin from their home computers. Today mining is mainly done by large pools of miners or highly organized commercial operations and the total combined processing power of the Bitcoin network as of today is around 120 Exahash, or to spell it out, it means the network can process 120,000,000,000,000,000,000 possible block solutions per second. As a comparison point, a “supercomputer” like the Summit at Oak Ridge Labs has processing power still calculated in “Petas” which is a full order of magnitude less than “Exa”. That being said, it’s not a fair comparison since something like Summit performs varied and complex functions while Bitcoin hash power is “application specific” in that it’s very good at crunching SHA256 and little to nothing else.

Halving:

It’s reasonable to think that since Bitcoin mining is getting more difficult, the block rewards would get larger, but the reality is that every 210,000 blocks, (approximately 4 years at one block per every 10 minutes), the mining reward is reduced by 50% aka the “halving”. The halving is the process that mathematically caps the total number of Bitcoin ever to be mined at 21 million. This is very simply accomplished by halving the original 50 coin reward every 4 years until the year 2136 when the block reward reaches 1 Satoshi which is the smallest denomination available in the Bitcoin protocol (1 BTC = 100,000,000 Satoshi). The final halving, thus, occurs four years later in 2140 when the block reward can no longer be reduced by half and it becomes fixed at zero. Interestingly, by 2088 there will only be a total one full Bitcoin left to mine. As of today, a full 87% (ish) of all Bitcoin has already been mined. Something to think about if we believe that Bitcoin has long-term value.

Chart credit: Wikipedia

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