What is block reward? How does halving block rewards affect Bitcoin prices?

  • By bitcoincasts
  • December 29, 2022

One of the most important things on the Bitcoin blockchain is to halve the supply of new Bitcoin and its rewards for mining them. Each halving will reduce the inflation rate, thereby pushing up the price of Bitcoin. By 2022, bitcoin miners, or those who use computers as transaction Cpu and verifiers to participate in the bitcoin blockchain network, can obtain 6.25 bitcoins (BTC) for each block successfully mined. The next half reduction will occur in 2024, and the regional reward will be reduced to 3.125 at the time of the session. Over time, as the block reward approaches zero, the impact of each halving will weaken. So, what exactly is the block reward? How does halving the block reward affect the price of Bitcoin? Next, let's have a look.

What is block reward?

Block Reward is a reward obtained by miners after they have solved relevant mathematical problems and established a new block through calculation. The block reward is different for different digital currencies. Take Bitcoin as an example. Bitcoin is dug up at an established but continuous decay rate. About every ten minutes, a new block is generated, and each new block is accompanied by a certain number of new bitcoins that are constantly developing; For every 210000 blocks mined, the reward will be halved and the cycle will be four years. From the initial 50 bitcoins/blocks invented by bitcoin to 12.5 bitcoins/blocks after 2016, the total number will be close to 21 million bitcoins by 2040. After that, the new blocks will no longer include bitcoin rewards, and miners' profits will all come from transaction fees.

How does halving block rewards affect Bitcoin prices?

The halving of block rewards usually has a long-term positive effect on the price of special currency. Why is that? Many theories can be summarized as simple supply and demand relationship: if the output of Bitcoin decreases, the newly increased scarcity will automatically make them more valuable. But this needs a process and cannot happen immediately.

To explain in more detail why the reduction is related to the final price change, we should consider the role of miners. On average, 4380 blocks are mined every month and imported into the Bitcoin blockchain. Taking the block award as 12.5BTC and the price of Bitcoin as 5000 US dollars as an example, the total monthly income of miners can be calculated as 4380x12.5x5000=273750000 US dollars.

However, after the block award is halved, the block award is 6.25BTC, and the monthly income of miners drops to 4380x6.25x5000=136875000 (US dollars). This situation will lead to two results: miners either give up their work or refuse to sell Bitcoin at a price less than 10000 dollars.

So, what happened after the block rewards were halved in the past? History tells us that it will eventually be a combination of the two. A few miners will indeed give up, while most miners will choose to continue mining and holding.

The first time that the block reward was halved was in November 2012, when the price of a Bitcoin was about $11. The next year, the oil price began to rise sharply, reaching a record high of more than US $1100 in 2013. Subsequently, the oil price plummeted to the range of $220 to $240, and will maintain this level in the next few years.

The second halving of block awards occurred on July 9, 2016. Bitcoin fluctuated in the range of 580-700 dollars for several months, and began to rise slowly until the end of the year. This time, some insiders predict that history may repeat itself.

It is worth noting that different variables play a role in each halving. When the first block reward was halved, no one really knew what would happen. The second half reduction, the rise of Ethereum and the first issue of coins are a new element not seen in 2012.

This time, the biggest change in the digital currency network will be the public's more awareness of the special currency and the interest of institutional investors. If financial enterprises start to build positions on a large scale, they will influence Bitcoin in a form that investors have never seen before.

Speaking of this, I believe you have a certain understanding of what block rewards are and how halving block rewards affects the price of Bitcoin. In general, the key conclusion drawn from past historical lessons is that there is a clear link between halving Bitcoin rewards and subsequent price fluctuations. These changes in the supply side occur every four years. Keeping this in mind will help us better understand the factors that affect the price of Bitcoin at different stages. However, the editor also reminds investors that investment is accompanied by certain risks. Before entering the site, you must have a comprehensive understanding and not blindly invest.