GLOSSARY OF TERMS

Halving

Halving

GLOSSARY OF TERMS

Halving GLOSSARY OF TERMS

Halving is a halving of the miner’s reward after every 210,000 block is mined in the blockchain system. The task of this mechanism is to control the emission of cryptocurrency and curb its inflation.

Miners compete to add the next block to the bitcoin chain network and calculate the required key. This activity brings users a reward in the form of bitcoins. Cutting coins in half ensures that the number (which can be mined with each block) will decrease, and this will make bitcoins more rare and valuable.

In the network, halving is programmatically scheduled: on average, six blocks are created per hour, so the halving of the award occurs every four years. Each new block is built in a chain with the previous ones and contains data on all transactions processed in a ten-minute period of time, including amounts, transaction hash and information about users’ wallets. Cryptocurrency emissions are limited, so if the trend continues, the last coin will be mined in 2040.

The halving mechanism is quite confusing. It might seem that the incentive for mining will drop after each reduction in the reward, but this is not entirely true. As practice shows, a decrease in the number of bitcoins often leads to a huge jump in the price of coins, and this again motivates users to mine. In such a situation, they need to mine as many blocks as possible, since the reward for them is halved.

If the bitcoin price does not increase, and the block reward is halved, miners will lose incentive for their activities. This is due to the fact that mining requires a lot of computing power and electricity, therefore it is an expensive process.

When the last scheduled halving occurs, miners will be rewarded with a commission from netizens (i.e. people who buy and sell bitcoins) to keep them interested in continuing to process transactions on the blockchain.

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