Before I proceed GP in this post refers to a simple maths expression known as geometric progression. And yeah this post is going to be related mainly to halving and crypto burning.
Let's dive right in;
Well, it's obvious that crypto halving is about cutting something about a cryptocurrency in half. But the question is what exactly?? Now if we simply put supply it's wrong, similarly putting circulation is also a misconception. For a simpler understanding let's take bitcoin as a case study. Going a bit into Bitcoin economics, Bitcoin has a totally supply of 21 million coins. Now this 21 million supply is the maximum number of bitcoins that can be mined and hence put into circulation. Now the question is Since we aren't cutting supply in half in the case of halving what then?
Bitcoin uses a proof of work mechanism where coins are mined into circulation through a process known as hashing. During the very first 4 years of the creation of Bitcoin, mining was far more profitable, as valid hashes found during successive mining sessions brought more bitcoin rewards which was 50
BTC per block .
In halving , these rewards are the ones that are cut in half. Halving occurs on the Bitcoin network after every successfully mined 210,000 blocks which takes Approximately 4 years and yes it's quite a constant period of time because the network is able to adjust it's difficultly based on the rate at which the previous block was mined. You can find more explanation about that on this quiz thread by Blackhatcoiner;
Based on the network protocol, the halving reward per block gives a mathematical geometric progression having a first term of 50
BTC , a second term of 25
BTC ,a third term of 12.5
BTC............... (50
BTC , 25
BTC , 12.5
BTC ..........)
Below is a simple mathematical process giving a GP equation for halving rewards per block.
May seem new to some members here but it will be of help to those still trying to understand the whole halving process.
BURNING Unlike halving that has a GP for successively new and reduced block rewards per halving, crypto burning doesn't. In halving the rate at which new coins are mined and added to circulation is being reduced without affecting the total supply.
Well burning is different. Although both are aims to regulate the value of the coin, burning means simply cutting off a relatively huge amount of the coins from circulation.
Take for example, before bitcoin became popular today, SATOSHI mined say 500,000
BTC , stored them all in a single wallet and got rid of the keys, that's burning. Now take note that the effect of that burning doesn't affect the total supply of Bitcoin which is still 21 million, however is has removed 500,000 from the total amount of circulating coins, meaning if 5 million
BTC had been mined at the time of the burning, bitcioners will only be able to circulate 4.5 million
BTC + coins that will be successively mined after that by making bitcoin transactions.
Since the burning doesn't use a specific rate, we can't actually create a GP equation for it, except some coin existed which a fixed amount of it is constantly burned every period of time say 4 years. The truth is over time , as a coin begins to gain value burning would gradually become uneconomical since it's a loss of money to the person burning it.
Imagine burning 10,000 bitcoins today ( lol
) that would obviously be beyond crazy.
Show Posts
