When Satoshi Nakamoto invented Bitcoin in 2009, he already set the maximum number of Bitcoins that could be mined, which is 21 million Bitcoins. Due to its limited supply accompanied by the social media frenzy surrounding cryptocurrencies, the value and demand for Bitcoin drastically increased over the years. The system runs through mining, the process in which a miner gains rewards for contributing to the process in which the transactions made by the users are verified and permanently added to the block chain. It is also the method of releasing new Bitcoins. Miners initially got 50 coins as a reward, until the first bitcoin halving event happened.
Basically, Nakamoto implemented a rule for miners that will decrease the reward for miners by half, hence the name, for every two hundred and ten thousand blocks (210,000). Since the reward was initially 50 coins, the winning miner for the block number 210,001 will receive exactly the half of 50 coins which is 25 coins. The first halving event occurred in late 2012, and the second halving event happened halfway through 2016, where the winning miner of the block number 420,001 received 12.5 coins as a reward. The process is predicted to continue until all the 21 million bitcoins have been mined by the year 2140.
The halving event baffled the miners at first, although it has not affected the value of Bitcoin. Others perceived the event as unfair to new miners, since they received a lower amount of reward compared to the first generation of miners. However, it is important to keep in mind that Bitcoin is a commodity. The law of demand and supply is also applied in Bitcoin. For Bitcoin to retain its high value, its production must be slowed down. This is what the halving event is for. It slows down the creation of coins. If Bitcoin is created in such a fast pace, there will be so many bitcoins in circulation and its value will eventually plummet.
Moreover, the halving event controls the production without compromising the promise of decentralization. The miners do not have any control to the creation of coins; they are controlled by the halving event that is embedded on the code of Bitcoin. It also prevents the inflation in which the traditional fiat money usually experiences. Central banks all over the world can print as much as they want, which decreases the value of the money and increasing the inflation. Bitcoin is trying to combat the problems that occurs on fiat currency and mimics the behavior that surrounds gold and other precious commodities. However, unlike gold, Bitcoin miners have full knowledge of the remaining number of coins and when will the supply tighten.
The halving event is essential in keeping the value of Bitcoin. Bitcoin Halving is initially made by Satoshi Nakamoto to keep the Bitcoin value high, its supply limited, and its creation and distribution slowed down. Bitcoin has maintained its position as the top cryptocurrency and many Bitcoin enthusiasts are convinced that the halving event’s effectiveness is one of the reasons why.
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