In the Cryptocurrency world, the block reward (or mining reward) is the number of coins that are given as reward to the miner that first “found” the next block by solving the a mathematical puzzle.

The whole procedure of finding the next block in a cryptocurrency blockchain, is called mining.

 

 

Who decides for the block reward’s value?

The block reward is predefined for each cryptocurrency network and usually it is not stable for the lifetime of the network.

This happens for inflation reasons, since each  digital coin has a different maximum supply of coins and a different set of rules.

The circulating supply, aka the coins that are available in the market at the moment,  come from a specified rewards plan. This plan describes the number of coins that are rewarded to the miners for each block (called emissions as well) and the future changes of these rewards.  The changes are taking effect after a certain number of time which is equal to a certain block height.

The most usual scenario of the reward’s change is their reduction, typically cutting them to the half. This is what we call “halving” , because Bitcoin used this model.

But what is the meaning of a mining rewards halving? This usually happens as a hedge against inflation over time. Since the price, guided by price equilibrium, is bound to increase. On the flip side, fiat currencies (like the US dollar), inflate over time as its monetary supply increases, leading in reality to a decrease in purchasing power. This is known as monetary debasement by inflation. An example for this can be seen by just comparing the housing prices before some decades and today.

 

The example of the Bitcoin’s halving plan

For example, the legendary Bitcoin with 21 Million coins maximum supply, when was launched on May 2009 had a block reward of 50 BTC which is halved every 210 thousands of blocks or 4 years because each block has a time of 10 minutes.

So, 4 years later (May 2013) and after the 210,000 block, the reward was 25 BTC for every block,  then 12.5 BTC after block 420,000 on May 2017 and so on.

 

Another example : BitcoinZ’s halving plan

In the same way, BitcoinZ which has a same halving reward approach (every 4 years) , was launched on September 20017 with 12,500 BTCZ coins as block reward with block time of 2,5 minutes.

4 years later it is going to have 6,250 BTCZ coins as reward and so on.

 

BITCOINZ halving

The importance of a fair and slow halving plan

It is very important to understand the role of a well balanced halving plan for the block rewards of a digital coin. A digital coin with no halving plan would face inflation issues because the coin supply in the market would be endless. On the other hand a digital coin with ultra fast halvings in a few months is usually a speculative trick that has been made extremely popular among the various cryptocurrency scams.

 

Fast and unbalanced halving plans : a high possibility scam

There have been cryptocurrency projects with their block rewards cut to half again and again in just a few weeks or even days ! Under such circumstances, the miners who know about the project, and join immediately its network, are enjoying huge block rewards while any future miner is condemned to be rewarded with just a small fraction of the reward.

This leads to extreme centralization in the level of the digital coin distribution and this is something that goes against the original cryptocurrency idea.

Usually, the founders of projects with fast reward halvings are targeting to a massive sell-off. Since their easy to obtain holdings, during the first period with the great mining rewards, are the lion’s share of the whole circulating supply.

This way, they can easily “pump” the price of their project with some tricks in order to technically increase the demand. So they sell their coins with the inflated prices before jumping to their next project  that will be again under their full control and prepare their next scam exit.

This is why the really Community Driven Projects with fair coin distribution are always much more transparent and resistant to such scam scenarios. Simply because there is no governor or  founders beneficiaries who technically own the lion’s share of the coin supply. 

You can read some golden tips in order to protect yourself from cryptocurrency frauds here.

Halving rewards examples

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