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What is the Bitcoin halving?

One of the key characteristics of Bitcoin is that there is a cap on the number of Bitcoins that will ever be in circulation. The upper limit for Bitcoin's supply is 21 million. Once the network reaches that limit, no more Bitcoin can be released.

However, if these 21 million Bitcoin were released in the wrong way, it would create a host of problems. Bitcoins are created when the blockchain rewards a miner for validating transactions. The network gives Bitcoin to miners for adding blocks to its chain.

To ensure that this process is sustainable, Bitcoin creator Satoshi Nakamoto included a rule in the Bitcoin protocol that the rewards miners earn would decrease by 50%!e(MISSING)very 210,000 blocks, or approximately every 4 years.

Tis is an event known as the 'Bitcoin halving', or the 'Halvening'.

Since Bitcoin's inception in 2009, there have been two halving events. The initial reward for miners was 50 Bitcoin for each block mined. It was then halved to 25 Bitcoin in 2012, 12.5 Bitcoin in 2016 (the current reward), and the next halving is set to take place in May 2020, when the reward will be reduced to 6.25 Bitcoin.

Why do they happen?

The halving is done to control the supply. If the coins are created too quickly in relation to demand, basic economic theory dictates that there will be a surplus in circulation and their value would fall.

Satoshi Nakamoto even explained the thought process in an email:

"The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase."

"Coins have to get initially distributed somehow, and a constant rate seems like the best formula."

To determine the rate at which they would be released, Satoshi used a logarithmic scale. This is why after 10 years, more than 80%!o(MISSING)f Bitcoin supply has been mined. However, it will be 2140 before the final Bitcoin is released.

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