The creator of Bitcoin, Satoshi Nakamoto, created the block reward when he created Bitcoin. Bitcoin mining rewards refer to the new Bitcoins that are distributed to the miners by the network for successfully solved blocks. This is Bitcoin’s central rule and cannot be changed without an agreement between the entire Bitcoin network.
The Two Limitations of Bitcoin Mining Block Reward?
The reward is governed by two limitations because not more than 21 million Bitcoins be mined.
Reward Halving: It cuts the reward in half and which occurs after every 210,000th block. The block reward was initiated at 50 BTC in block 1 and halves every 210,000 blocks, which meant every block up until the 210,000th block, 50 BTC would be rewarded, but for the 210,000th block, the reward would be 25 BTC. In 2016, Bitcoin experienced another milestone and the reward of mining a block was cut in half from 25 BTC to 12.5 BTC.
On an average, blocks are mined every 10 minutes, which is approximately 144 blocks mined in a day. At this speed, it is expected that 210,000 blocks will take nearly four years to mine.
Network difficulty: It changes periodically. So, it can be on the lower or higher side.
Importance of Bitcoin Mining Rewards
The block rewards are a way to create new bitcoins on the network. It also creates an incentive for miners for adding hash power to the network. Miners use their ASICs to get block reward, which make up the entirety of the Bitcoin network hash rate. With every 10 minutes, every blockchain is governed by a hash code that is rectified by the network. The miner pools are responsible for giving the bitcoin mining reward.
Bitcoin Mining with ASICs
Application Specific Integrated Circuits (ASIC) are not just expensive, but also involve high electricity costs. So, it becomes profitable for the miner only when hardware and the electricity costs for mining a Bitcoin are less than the price of one Bitcoin. This apparently means that miners can mine bitcoins and sell them at an effective cost.
If in case a miner has more hash power or mining pool, the chances of that miner or pool to mine a block becomes higher. When the miners add more hashrate, the security of the network increases automatically. Bitcoin mining reward acts as an incentive and subsidy for miners until the transaction fees are paid to the miners.
When a Block Reward Becomes Small
Bitcoin users usually pay some fee for sending a transaction on the network, which as of now, is quite a small amount. This is because of the reason that there are only a handful of Bitcoin users. But eventually, the transaction fees will increase and will make up for the reducing block rewards.
How Block Reward Halving Influence the Bitcoin Price?
As per expert advice, it is impossible to determine whether a block reward halving would influence the price of Bitcoin or not. Like with commodity, a decrease in supply, with no change in demand, mostly leads to a higher rate. However, this is not the case with Bitcoin. Since the block reward schedule is public, the bitcoin miners know the approximate time of the bitcoin halving, and this makes it is quite impossible for the block reward halving to influence the Bitcoin price.
In the year 2012, the first block halving took place, and the bitcoin mining reward dropped from 50BTC to 25 BTC. However, later the price climbed up to $260 per BTC in April 2013 and it again shoot to $1163 per BTC in November 2013. Therefore, it is still unclear whether the block reward halving influence the bitcoin price or not.
Does Block Reward Halving Influences Miners?
Block reward halving may not affect the Bitcoin price, but it impacts miner’s earnings, by reducing it into the half. Assume a situation; if the Bitcoin price has been the same after and before the halving, then it would undoubtedly influence the miner.
Most importantly, the block reward halving impacts the supply by reducing it, thus causing a rise in the Bitcoin price. If you want to know about the future block halving dates, you can always refer to websites like Bitcoin Clock and Bitcoin block half.