The Halving: when the reward for mining Bitcoin is cut in half
In extreme contrast to inflationary fiat currencies, Bitcoin is deflationary; it becomes more valuable over time. After its invention in 2009 by the legendary Satoshi Nakamoto, enthusiasts celebrated when the fiat-denominated value exceeded $0.01. By 2010, it was valued at more than $0.05, and today one Bitcoin is priced at over $23,000. In the last seven years alone, the value in relation to fiat has risen by 6,000+%.
How is this possible? In addition to being a superior money system, this dramatic rise in perceived value is caused by a part of Bitcoin´s own algorithm; it´s called The Halving.
What is The Halving?
As you may know, Bitcoin uses a blockchain database with timestamps of 10 minute “blocks”. This is a security protocol designed to protect the network from double spending. For every block, there is a race between computers (“miners”) around the world to solve a SHA-256 encryption, and the difficulty is automatically adjusted so that this takes approximately ten minutes. The winner is rewarded with Bitcoin, and the network is kept safe from a wide range of threats.
Every 210,000 blocks (approximately 4 years) the reward is cut in half, and this causes a dramatic spike in the perceived value of Bitcoin, because of a sudden shortage of supply. This may be the most fundamental point to understand before investing in Bitcoin; the price is volatile, but the strong hands always win. Below is a logarithmic graph of Bitcoin prices since 2010 – approximate halving dates have been circled in red.
The implications of deflationary money
The implications of this for humanity are incredible; a civilization which used Bitcoin as its standard medium of exchange would have the incentive not to buy things they do not need, because their money would be worth more (in scarcer supply) the longer they hold onto it. In contrast, fiat encourages spending because it constantly depreciates in value. A mass migration to Bitcoin would significantly contribute to reducing our wasted resources, and futile cultural addictions to materialism.
As the perceived value of fiat continues to fall in relation to Bitcoin, many will be tempted to exploit it to accumulate more fiat wealth. This is extremely short sighted. With Bitcoin, we have an opportunity to build a new circular economy by the people, for the people – for ourselves and generations to come. An economy rooted in honesty, sound money, public consensus, and free of systemic theft.
Which economic system will you allocate your attention and energy to?