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22 June 2021

What is the Bitcoin Halving? How Bitcoin's Supply is Limited - Decrypt

What is the Bitcoin Halving? How Bitcoin's Supply is Limited - Decrypt

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Every four years, the amount of Bitcoin doled out to cryptocurrency miners halves, in a process imaginatively known as the Bitcoin halving (or halvening).

Bitcoin was revolutionary in that it could, for the first time, make a digital product scarce; there will only ever be 21 million Bitcoin.

Satoshi Nakamoto believed that this devaluation of fiat money could have disastrous effects, and so, with code, prevented any single party from being able to print more Bitcoin.

However, about every four years, the reward for mining is halved–hence “the halving.” Each halving reduces the rate of new Bitcoin entering into the supply, until no more new Bitcoin is created at all in the year 2140.

By writing a total supply and halving event into the Bitcoin code, the monetary system of Bitcoin is essentially set in stone and practically impossible to change.

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

For this reason, once the last Bitcoin is mined, miners will (assuming there haven’t been any major changes to the Bitcoin protocol) receive rewards in the form of transaction fees for maintaining the Bitcoin network.

It’s possible that Bitcoin could follow suit.

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) impacting on that ratio.

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