Why Does Mining Reward Halve (Why Does Mining Generate Value)?

08/16/2023 16:02 • Tech Trends • 108 views

Why does mining reward halve? According to the “2018 Bitcoin and Blockchain Industry Development White Paper,” major digital currencies experienced significant price increases before the third halving in 2016. However, due to the large price fluctuations, many people held a pessimistic attitude towards the halving. This led to an increase in mining difficulty and a decrease in block subsidies, which is the reason for the current mining boom.

With the decline in Bitcoin’s network hash rate in the first quarter of 2019, the network’s hash rate has been constantly rising, resulting in changes in mining difficulty. According to statistical data, by the end of 2017, over 650,000 S9 mining machines were deployed in China, with an average income of around 1 USD per T, equivalent to an average cost of about 50,000 USD (based on current market trading volume). However, based on historical trends, these machines will eventually become unsustainable, further reducing their security and efficiency, thus affecting the normal operation of the entire cryptocurrency industry.

So why does mining reward halve in 2020? First, before the halving, mining rewards will decrease from the original 12.5 BTC to 6.25 BTC, and then a new halving will occur every year until the supply is completely restored to the initial level of below 12 BTC. The halving will also increase the daily rewards after the second halving. The fourth halving will provide a completely new reward for anyone who joins mining.

Regarding changes in mining rewards and the mechanism design after halving, these topics are frequently discussed. The increase in rewards after halving is to encourage more people to participate in mining and stimulate more attention to the development direction of the mining industry. Let’s take a look at recent news – Bitcoin’s price fell from around $38,000 to the support level near $29,000, and then quickly rebounded and broke through the $40,000 mark.

However, for many ordinary investors, this bull market did not bring much hope for those who wanted to invest in cryptocurrencies. Moreover, the increase is remarkable, and many people are asking why mining profits are so huge this year. This is because Bitcoin’s inflation rate is increasing, so they start considering the economic benefits brought by halving.

In fact, Bitcoin’s deflationary nature is not without reason. It is a speculative tool with the purpose of attracting people to purchase and store their wealth. For example, if you want to buy a Bitcoin mining farm, you need to pay for electricity costs. However, as long as someone is willing to spend money to buy one, your mining pool can earn a small portion of income. This allows you to have a stronger competitiveness and better risk control. On the other hand, some countries are formulating relevant policies and regulatory frameworks to ensure the stability of Bitcoin’s price.

Why Does Mining Generate Value

According to Cointelegraph, why does Bitcoin mining generate value? There are three main reasons. First, running a node on the network is relatively inefficient. Second, when someone wants to purchase a computer, they must spend a significant amount of computing resources to solve this problem. Third, if someone is willing to pay a fee to mine cryptocurrencies, then this money becomes your profit, and this process is also known as “mining.” So mining allows people to make money, but no one can truly own it and invest these funds in production to gain more wealth and returns.

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Why Does Mining Reward Halve (Why Does Mining Generate Value)?

Why Does Mining Generate Value

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