Cut

The Halvening is upon us: bitcoin block reward gets cut in half

Tuesday, May 12, 2020 by Snacks
_The Halvening_

The Halvening

Not a horror movie title... The Halvening. Bitcoin’s long-awaited block reward halving — the 3rd ever since the cryptocurrency's creation — happened (halvened?) yesterday. The reward for verifying a block of Bitcoin transactions has been cut in half from 12.5 Bitcoins to 6.25 (at $8.7K/Bitcoin, that's a $54K reward). A little background...

  • When bitcoin was created by the mysterious "Satoshi Nakamoto," he/she wanted to make sure people wouldn't use it fraudulently (like using the same coin twice), because then it could become worthless. Enter Bitcoin miners...
  • People "mine" Bitcoin by using a massive amount of computer power to verify the legitimacy of transactions on the block. With Bitcoin, there's no central bank to validate transactions (no Chase updating your latte purchase in-app) — so miners are critical.
  • Miners get rewarded in Bitcoin for successfully adding a block of transactions to the chain (aka updating "ledger").
  • Every 210K blocks (around every 4 years) the block reward is cut in half — in 2009 it was 50 BTC, in 2012 it was 25 BTC, in 2016 it was 12.5 BTC — now it's 6.25 BTC.

Curb your crypt-thusiasm... In addition to verifying the legit-ness of transactions, mining also introduces new coins into the system (like a central bank controlling the printing of $$$, but decentralized). Enter Satoshi's halving rule...

  • Halving the reward is a way to prevent inflation and control this new supply of bitcoin — slowing the creation of coins helps stabilize price.
  • Today, about 18.4M bitcoins have been mined out of the 21M that will ever be created — in 2140, all 21M coins will have been mined.
THE TAKEAWAY

It's all about getting "priced in"... This event has been on calendars since 2016 and Halvenings have happened before. If all investors in the market know that same information (like they did), then they probably already reacted and planned for the Halvening beforehand. That means the event was “priced in” to the current price, so in theory the Halvening shouldn't move the price much — and it didn't. The price of a Bitcoin just inched down yesterday.

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