Bitcoin’s value is based on it’s reallocation model. Rhow miners are the people operating computers building Bitcoin’s blockchain. Essentially, miners could be seen as people who use computers to solve complex problems to verify transactions. The key point is that these miners are paid each time they append a block of transactions.
These miners are rewarded in new bitcoin created by a coinbase transaction that is included in each block. For the first four years of Bitcoin’s life, a coinbase transaction would issue 50 bitcoin to the lucky miner. The difficulty of this proof-of-work process was re-calibrated automatically every two weeks with the goal of keeping the same amount of time between blocks at an average of 10 minutes…
So what does that mean exactly:
In other words, 50 new bitcoin were released every 10 minutes, and the degree of difficulty increased or decreased by the Bitcoin software to keep that output time frame intact.
In the first year of bitcoin running, 300 bitcoin were released per hour (60 minutes, 10 minutes per block, 50 bitcoin release per block) 7,200 bitcoin per day, and 2.6 million bitcoin per year.
So where does Bitcoin get its value?
When we think of value we normally think of an items scarcity, or the amount there is of that item. Satoshi, whomever he, she, or they are, knew that he couldn’t issue bitcoin at a rate of 2.6 million per year forever. If that happened, it would end up with no scarcity value. Instead, Satoshi decided that every 210,000 blocks — which at one block per 10 minutes takes four years — his program would cut the amount of Bitcoin issued in coinbase transactions in half. This procedure is known as “block reward halving,” or “halving.”
On November 28th, 2012, the first halving of the block reward from 50 bitcoin to 25 bitcoin happened, and the second halving from 25 bitcoin to 12.5 bitcoin occurred on July 9th, 2016. The third will happen four years from that date, in July 2020.
The Genius of Satoshi’s logic:
Satoshi rewarded early adopters with the most new Bitcoin to get sufficient support, and in so doing created a big enough base of monetary liquidity for the network to use. He understood that if bitcoin was a success over time its dollar value would increase, and therefore he could decrease the rate of issuance while still rewarding supporters!
Source: Burniske, Chris, and Jack Tatar. 2018. Cryptoassets: the innovative investor’s guide to bitcoin and beyond.