A monetary policy associated with Bitcoin and some other cryptocurrencies. It consists of halving (reducing in half) the number of coins released into the system with every block which has been mined. In the case of Bitcoin, the halving takes place every 210,000 blocks, which equates to roughly a 4 years time period. It is entirely controlled by software.
The date of the next halving is shown at this address:
BTC halving rules
Bitcoin (BTC) is a deflationary currency that was developed to resemble gold. Its production is scheduled to diminish over time so as to become more scarce and increase in value. The key rules are as follow:
- 21,000,000 maximum number of bitcoins ever produced (they will be less because some have already been lost)
- 10-minute intervals between the mining of each block so to allow enough time for the consensus to be achieved and make hacking more difficult
- The halving event happens every 210,000 blocks, that is every 4 years
- The block reward offered to miners started at 50 bitcoins per block and then diminished to 25, 12.5, and finally to 6.25 in May 2020.
Bitcoin price can be influenced by halving but not always and not in the same percentage. The halving has a double effect on the market. By making the coins more scarce it tends to increase value. At the same time, by reducing the mining reward, it makes it less profitable to mine. Fewer miners and less power employed into mining equate to lower security.
Therefore the halving has a double effect that needs to be taken into account in evaluating the trend of the Bitcoin network or any other cryptocurrency which follows the same system.
Bitcoin game theory
Game theories are used in mathematics to predict how people male decisions. It is often used in economics to evaluate how conflicts and cooperation interact in the choices of intelligent and rational decision-makers. The security of BTC is guaranteed by a game theory which requires that:
- Miners have an incentive to mine honest blocks.
- There is a high cost in attempting to behave dishonestly.
The whole network would be in chaos if there were no block rewards. By using enough power, miners could prevent transactions from going through or manipulate the accounting record, the blockchain, so to spend the same bitcoin twice.