The mystery of BTC’s “four-year halving”

Looking back at the price fluctuations of BTC, investors may be surprised to find that BTC started a bull market in 2012 and 2016. One of the reasons that drove BTC up in these special periods was BTC's "four-year halving". What is "four-year halving"? Why is it necessary to "halve every four years" and how is it halved?

1. BTC Reward Mechanism

Let’s first review what Bitcoin looks like.

The entire main chain of the blockchain is linked together, like closely connected sleepers on a railway track. Every time miners produce a new block (i.e. mining), it is like workers laying a new sleeper on the endlessly extending railway track. Part of the miners' income comes from the rewards given by the system after producing a block.

In order to be eligible to produce a block, miners need to solve a difficult math problem. The system can control the difficulty of the math problem, thereby indirectly controlling the mining speed of miners (maintaining a block every 10 minutes) and sending rewards at the same time. This means that new BTC will be "printed" approximately every 10 minutes. If it is not restricted, the increase in BTC issuance may lead to serious inflation.

In response to this, Satoshi Nakamoto proposed a simple and effective solution - the reward halving mechanism. As the "blockchain railway" becomes longer and longer, the mining rewards for miners will become less and less, thereby controlling the inflation of BTC.

2. How much BTC is there?

Based on the above data, we can calculate the total amount of BTC, which will be a fixed value.

That is, the theoretical total amount of BTC is 21 million, and no new BTC will be generated after the issuance. Through the reward halving mechanism, BTC can effectively curb its own inflation.

In addition, we can also roughly determine the time period for the halving of Bitcoin mining rewards by calculation, based on the standard that miners mine a block every 10 minutes and there are 365 days in a year.

This is also the secret of the often-mentioned BTC “four-year halving”.

3. Will BTC be mined out?

Serious readers may have some questions about this. The reward mechanism of BTC has a problem similar to Zeno's dichotomy paradox (a person walks from point A to point B, first walks 1/2 of the distance, then walks 1/2 of the remaining distance, then walks the remaining 1/2... and so on, and can never reach the end). Every time the BTC reward is strictly reduced to half of the original, there will never be a day when the mining reward is equal to zero. So why do we often say that BTC will be mined out in 2140?

This is because of the side effect of the blockchain data structure, the integer storage type limits the accuracy of BTC division. Even computers powerful enough to change the world cannot "divide" BTC infinitely. Due to the limitation of integers, BTC will have a limit that is so small that the integer cannot be saved. Currently, the smallest unit recorded in BTC is called Satoshi.

After the BTC reward halving mechanism was executed 32 times, the miner reward has been reduced to 1 Satoshi. In theory, after the 33rd halving, the miner reward should be 0.000000005 BTC. But in fact, this data is already less than 1 Satoshi, and the miner reward will directly become 0 BTC. At this time, the total number of mined BTC is 20999999.9769. If the mining capacity has remained unchanged since the first BTC was mined (precisely keeping a new block every 10 minutes), the last Bitcoin will be mined around October 8, 2140.

This article is from "Biquan".