Bitcoin’s deflationary mechanism from the perspective of the Halving event

Bitcoin’s deflationary mechanism from the perspective of the Halving event

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2021-06-26 12:30:05

Bitcoin Halving is a mechanism built to turn Bitcoin into deflationary cryptocurrencies. This is the mechanism that maintains its positive value in the long run.


Bitcoin is a deflationary currency

From the very beginning, the creators of the Bitcoin cryptocurrency, specifically Satoshi Nakamoto, wanted it to be a currency that would never depreciate. A deflationary mechanism has been built to prevent the currency from depreciating, which is the halving.

Unlike other coins, with an infinite amount of printing as regulated by banks, Bitcoin has a limit of only 21 million BTC. First of all, limiting the quantity makes Bitcoin, by its very nature a rare asset, inescapable from inflation.

Bitcoin’s Deflation Mechanism

Bitcoin is also programmed with a mechanism to mine new coins to supply the market. According to this mechanism, every time 210,000 Blockchain blocks are decrypted, the reward value for this puzzle will be halved. Normally, this number will be reached every 4 years.

Bitcoin’s deflation mechanism also stipulates that a Bitcoin block will only be decrypted after 10 minutes. Initially, each Blockchain block when successfully decrypted will have a reward value of 50 BTC. But 4 years later, in 2016, that number was down to 12.5 BTC. According to estimates, the number of rewards for each Blockchain block mined in 2020 is only 6.25 BTC.

The reduction in rewards shows that the number of new Bitcoins added and entering the market is slowing down, making Bitcoin’s value remain stable. This also means that the time it takes to deliver 1 new BTC to the market is getting longer and longer. The halving process will continue until the last Bitcoin is mined in 2140.

Impact of the halving on the value of Bitcoin

Halving is a purpose-built mechanism by the founders of Bitcoin. This mechanism has a long-term positive effect on the value of Bitcoin. According to the mechanism of supply and demand, the creation of less, more scarce BTC automatically makes each coin more valuable.

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