The third Bitcoin halving took place on Monday, May 11, 2020 at 7:23 p.m. UTC. It reduced the Bitcoin mining rewards from 12.5 to 6.25 Bitcoin per block.
Let us take a look at the overall picture for Bitcoin supply and inflation, starting from 2009, till now. What are the dynamics, and what can be concluded?
The first Bitcoin was mined on January 3rd, 2009. More than 10 years now. When the Bitcoin network was launched the inflation was set to 50 BTC per block.
Here is how Bitcoin inflation works:
- One block is created approximately at every 10 minutes
- 144 blocks per day
- X amount of Bitcoin is rewarded per block
- Daily inflation = (number of blocks per day) * (Bitcoin rewards per block)
Here is the history of Bitcoin rewards per block:
- Jan 3, 2009, 50 Bitcoins per block
- Nov 28, 2012 - 1st halving, 25 Bitcoins per block
- Jul 9, 2016 – 2nd halving, 12.5 Bitcoins per block
- May 11, 2020 – 3rd halving, 6.25 Bitcoins per block
Going from 50 BTC per block in 2009 to 6.25 BTC per block in 2020.
The halving events are taking place approximately on a 4 years periods, although looks like its been shorten by few months on each halving. The next, 4th halving is expected to happen somewhere in February 2024, and it will cut the Bitcoin mining rewards to 3.125 Bitcoins per block.
The havening events will continue to occur up until somewhere around 2140 when the last Bitcoin is expected to be mined. This of course if no code changes are applied till then 😊.
With this mechanics in place lets take a look at the Bitcoin inflation and supply history.
Bitcoin Inflation
Bitcoin just had its 3rd halving cutting the inflation from 12.5 to 6.25 per block. There are approximately 144 blocks per day.
- (144 Blocks per day) * ( 12.5 Bitcoins per block) = 1800 Bitcoins per day
- (144 Blocks per day) * ( 6.25 Bitcoins per block) = 900 Bitcoins per day
Note that these are number for one block produced each 10 minutes. Recently this time has been shortened a bit to less then 10 minutes, around 9.5 min because of the efficient miners. This means that in practice there is more than 1800/900 Bitcoin produced per day.
Here is the overall chart for the daily inflation.
The initial Bitcoin inflation was more than 7000 Bitcoins mined per day, to around 1000 Bitcoins starting from May 11, 2020. This is a more than 7 fold decrease in inflation on a daily basis, in a period of 11 years.
For better overview here are the monthly and the yearly chart on new Bitcoin mined.
Monthly Bitcoin Created
From more than 200k Bitcoin per month to around 34k Bitcoins per month.
Yearly Bitcoin Created
Up until 2012 there is around 2.7 million Bitcoin mined each year. With the last halving starting from the next year the yearly inflation will be around 0.4 million bitcoins.
Note: The numbers are approximate and not totally accurate
Bitcoin Supply
Adding the numbers for inflation presented above we get the overall Bitcoin supply.
We can notice how the overall supply is starting to flatten out with less and less Bitcoin created. The first 4 years 2009 – 2012 had high inflation, and then we can notice the curve change. This is when the first halving happened. The next halving are also visible on the chart when the curve changes angle.
Some dollar numbers.
Before the halving there was around ~17.4 million dollars’ worth of Bitcoin mined each day, with the current price of Bitcoin at 8700. On a monthly basis this is around 522 million dollars. After the halving, the new mined Bitcoin is half the numbers above, or 8.7 million dollars daily worth Bitcoin and 261 million per month.
Cutting of the supply for more than a 200 million dollars per month is something to consider. Now some of the miners were selling, some were accumulating. We cannot tell for sure what is the overall impact on the market from miners selling. But it surely has an effect that is not to undermine.
Price = Supply + Demand
The supply has been reduced, if the demand is same or bigger, the price will go up.
Pro and Cons to the halving
Some will say that Halving is all Pro and zero Cons. But if we take an objective look there is some cons for the halving as well.
At the moment of writing this 18.37 million Bitcoin from the total of 21 million, are mined, or 87.5% of the total supply.
The new inflation now is 1.8% per year.
The Pro for this is clear. Bitcoin is becoming a scarce asset. It is with limited supply, slowly running out and it has a 1.8% inflation, that is lower than most of the central bank’s currencies, that are usually around 2%. Actually, these days it looks like it is much lower since the central banks started printing more and more money.
The Con for the bitcoin halving is that it constrains the supply and make it harder for newcomers. More people will feel that they have missed out the train and getting in too late. With halving happening every 4 years, going forward this will become even more obvious.
The current inflation of 1.8% is somewhere at the standard levels. When it will go below 1% in 2024 it will be a very low inflation.
Inflation is not always bad. It just needs to be controlled.
At below 1% inflation, more of the new comers will probably start to look somewhere else, and maybe creating new projects. We are already seeing this with tons of new coins/tokens coming out.
There are thousands of coins/tokens out there now. Not all of them aim to be a competition for Bitcoin as some are projects specifics, like in-game currency etc, but surely there are a lot with Bitcoin like properties.
This is overall a good thing and a free market at works. Up until now creating a currency was a luxury for countries/governments only. That is way people are not accustomed seeing so much new currencies, and a are looking to a lot of them with reserve. But as times passes, we will see more and more currencies created and will stop counting them probably. Each of them will try to find its place in some specific community.
Now we have this new economy where everyone can create a currency and compete. The market will choose the most successful once and they will not be imposed upon people from some grater force.
