Bitcoin’s Block Reward Is About to Decrease by Half: What Does It Mean for You? 🤑
TL;DR↓
- Bitcoin's block reward is about to be cut in half. As part of Bitcoin's coin issuance, miners are rewarded a certain amount of bitcoin whenever a new block is produced.
- As of now, the block reward is 12.5 coins per block and will decrease to 6.25 coins per block post halving.
- Bitcoin was designed as a deflationary currency. Like gold, the premise is that the issuance of bitcoin will decrease and thus become scarcer over time.
- There have been two previous halvings in 2012 and 2016. Following both, bitcoin appreciated.
Bitcoin, the revolutionary digital currency with a fixed supply of 21 million coins, operates under the idea that — less is more... valuable.
The first-ever digital currency, Bitcoin (BTC) is immutable, borderless, and scarce. That last point could be the most notable feature of bitcoin. Why? 🤔Because every year, fiat currencies add more supply. This decreases the value of the currency over time. 📉
Bitcoin doesn't have that problem. Its supply is fixed and it was designed this way — only 21 million bitcoin will ever be created. You cannot create more bitcoin.
From a mechanics standpoint, bitcoin's supply schedule is determined by halvings. A halving is a reduction in the mining reward roughly every four years or 210,000 blocks until all 21 million bitcoin are issued in the supply cap. (The last bitcoin is expected to be mined in 2140.)
If you're new to bitcoin, you may be asking yourself, what the heck is mining? Like mining for gold, bitcoin can be mined with computers called miners or nodes. These computers run the bitcoin software and compete with each other to solve very technical mathematical problems. The miner who is first to solve the problem will receive fees & new coins as a reward.
The halving will reduce these rewards from 12.5 coins per block to 6.25. By most estimates, this is scheduled to occur around May 12th, 2020. 📅 Track the countdown to the halving here.
How will the halving affect price of bitcoin this May? 🚀
The short answer — no one knows. There are two popular theories, the Stock-to-Flow model advocates believe the price will increase, but others believe the halving is already priced-in.
There have been two previous halvings. After the first halving, which occurred in November 2012, bitcoin’s price increased from $12 to more than $650. After the second halving in July 2016, the price accelerated to almost $20,000 in late-2017.
Stock-to-Flow Model
Many advocate for the Stock-to-Flow model (SF or S2F), which is the amount of a resource held in reserves divided by the amount it is produced annually. The Stock to Flow model is commonly applied to natural resources like gold, silver, and other precious metals. These are known as 'store of value' commodities because they retain value over time due to their scarcity. Bitcoin is similar because it is also scarce.
A high S2F ratio number indicates that the commodity is increasingly scarce — and therefore more valuable as a store of value. Gold has the highest ratio at 62. Similar to gold, bitcoin also exhibits a very high stock-to-flow ratio due to its low issuance relative to its current supply.
What does this have to do with the halving? Bitcoin's ratio number will increase at the next halving, and people suggest that bitcoin should appreciate. 📈
But is it already priced in?
Critics caution that bitcoin’s supply schedule is well-established and the halving may already be "priced in". In short, the market knows bitcoin’s issuance rate will decrease; therefore, people are purchasing more bitcoin now while it remains cheaper and less scarce.
Whether you believe in an imminent bull run or you believe it's already priced in, both sides understand that halvings are one of bitcoin's most beneficial features.
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