As the CKB halving is steadily approaching, we wanted to pay our respect to Satoshi Nakamoto, the creator/s of Bitcoin, the originator who heavily influenced the designs of all subsequent cryptocurrencies, including CKB.
The "halving" is a key monetary policy feature of Bitcoin, which for very good reasons, has subsequently been used in many other cryptocurrencies. The term "halving" refers to a scheduled reduction in the rate at which new cryptocurrency units are generated.
In the case of Bitcoin, the halving event occurs approximately every four years, or precisely- every 210,000 blocks. When Bitcoin was first created in 2009, the reward for mining a block (i.e., adding transactions to the blockchain) was 50 bitcoins.
After the first halving in 2012, this reward was cut to 25 bitcoins, then to 12.5 after the second halving in 2016, and then to 6.25 after the third halving in 2020.
The halving mechanism is one of the ways Bitcoin mimics gold and other scarce resources: over time, it becomes progressively harder (and thus more costly) to mine new bitcoins, which in turn makes the existing bitcoins more valuable.
That being said, Satoshi could have made Bitcoin a scarce asset only by capping its total supply without ever introducing the halving mechanism. So why did he do it? Well, let's look at what the legend themself had to say:
Before we dig in, let's look at another quote:
Scheduling halvings every four years was Satoshi's way of balancing the supply of bitcoins with the demand. If the full supply of 21 million bitcoins was made available upon launch, supply would’ve far exceeded demand, and its value would’ve had very little chance of rising. Moreover, without the steady addition of a constant amount of new coins, there wouldn't be a way to *fairly* distribute the coins into circulation or a way to incentivize miners to support the network during its early stages. The reason why Bitcoin's supply starts high and decreases over time (halves every 4 years) is that the network needs to *heavily* incentivize miners to provide security during its bootstrapping phase, which can't be done with transaction fees alone.
Instead, the halving creates a flywheel effect by distributing as many coins to as many people as possible early on and then decreasing the inflation rate over time, creating an attractive-to-hold, hard or sound money asset with the likeness of gold.
The halving mechanism also gives the network time to mature and eventually transition to a fee-based incentive structure. Whether transaction fees will eventually provide ample compensation for miners to guarantee sufficient security for Bitcoin remains a hotly debated issue. ↓
This is why CKB iterates on Bitcoin's original monetary design, ensuring miners will always have a predictable source of income from block rewards, while also ensuring CKB acts as a hard asset with a capped supply for its long-term holders.
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