Bitcoin’s halving formula is a key mechanism that governs the supply of new Bitcoin entering circulation.
It’s designed to ensure that the supply of Bitcoin is limited and that the rate at which new Bitcoin are created decreases over time.
Here’s How It Works
When Bitcoin was first launched in 2009, the protocol was set to reward miners with 50 new bitcoins for every block they successfully mined and added to the blockchain.
However, every 210,000 blocks (approximately every four years), the reward for mining a block is halved.
This means that after the first 210,000 blocks, the reward for mining a block was reduced from 50 bitcoins to 25 bitcoins.
After the next 210,000 blocks, the reward was halved again to 12.5 bitcoins per block.
This halving process continues every 210,000 blocks, with the reward being cut in half each time.
The Purpose of the Halving Formula is Twofold
1. It helps control the supply of bitcoins: Bitcoin is designed to have a finite supply, with a maximum of 21 million bitcoins that can ever be created.
The halving formula ensures that new bitcoins are introduced into the system at a predictable and decreasing rate over time, making bitcoin a deflationary currency.
2. It incentivizes early adoption: The halving formula rewards early miners and adopters of Bitcoin with a higher proportion of the total supply of bitcoins.
As time goes on and the rewards decrease, the incentive to mine and participate in the network shifts more towards transaction fees rather than the block reward itself.
To illustrate the halving formula in action, here’s a breakdown of the reward per block and the approximate years when the halvings have occurred or will occur.
– 50 bitcoins per block (2009-2012)
– 25 bitcoins per block (2012-2016)
– 12.5 bitcoins per block (2016-2020)
– 6.25 bitcoins per block (2020-2024)
– 3.125 bitcoins per block (2024-2028)
With the rewards continuing to halve roughly every four years until the maximum supply of 21 million bitcoins is reached around the year 2140.
