Bitcoin has experienced his third ‘halving’. The anonymous creator(s) of bitcoin, Satoshi Nakamoto, thought it would be a good idea to slowly close the money tap for new generated bitcoin. The whitepaper of bitcoin in 2008 already mentioned this. Bitcoin stands for clarity and transparency, and that includes a certain monetary policy.
The rules surrounding the creation of new BTC were invented and implemented by Satoshi. And these rules are crystal clear. A stricter and more clearly defined monetary policy is hardly possible. Through the Proof of Work system, people are rewarded for their contribution to the network.
These rules are not enforced by anyone, everyone within the bitcoin network voluntarily agrees to these rules.
It contrasts sharply with traditional currencies. There is a different form of money creation where there are no clear rules. It is up to a select group of people who decide what happens to ‘our’ money. Satoshi believes that this can and must be done differently. That’s why he introduced a limit of 21 million bitcoin.
In order to reach that limit of 21 million bitcoin, ‘halvings’ were introduced. Every 210,000 blocks (~4 years) the reward for miners (the block reward) goes through half.
The block reward started at 50 BTC but we are now at 6.25 BTC after the halving yesterday. This means there will be less and less bitcoin available on the market. By 2140 the last bitcoins will be mined.
This system will be maintained by everyone who participates. To make sure that the bitcoin issuance is not too fast or too slow, there is another mechanism hidden in the bitcoin protocol.
The difficulty of finding a block (and thus receiving ‘new’ bitcoin) is adjusted every 2016 blocks (~2 weeks). So bitcoin tries to keep issuance at an average of 10 minutes. This makes bitcoin robust and flexible at the same time.
The declining reward for the miners is an important point on how Satoshi wanted to bring new BTC into circulation. Satoshi discussed this subject with the now deceased bitcoin pioneer Hal Finney in 2008.
“The fact that new coins are being produced means that the money supply is increasing by a planned amount, but this does not necessarily lead to inflation. If the supply of money increases at the same rate as the number of people using it, prices remain stable’.
With the current ‘monetary policy’ of halving every four years, 50% of all BTCs came on the market within the first four years. After 12 years 87.5% of all BTC is in circulation. The last bitcoins will become available in 2140.