What Are Halvings and How Do They Enforce Max Supply?
The Brilliant Key to Crypto Economics
Intro
What if I told you that Bitcoin’s max supply of 21,000,000 is actually a myth? Realistically, the cap is lower than that. How is this max supply enforced? The answer lies in a built-in mechanism called a halving event. Each time a new block is mined, the miner earns a block reward. After each halving, the block reward is cut in half. With the most recent Bitcoin halving, the block reward went from 6.25 BTC to 3.125 BTC. After the Ycash halving, the block reward dropped from 3.125 YEC to 1.15625 YEC. This means that each time a new block is added to Bitcoin, the winning miner receives 3.125 BTC and each winning miner on Ycash receives 1.15625 YEC.
What is a Halving?
“We looked at typical government election cycles. These are things which also could neither occur too often as folks would get too annoyed with them nor occur too infrequently for folks to be adversely affected when they came around. They needed to be at a rate that allowed folks to keep their purpose in their minds. So the decision was between a 3 year cycle or a 4 year cycle.”
—Scronty, Bitcoin Origins
The concept of the halving event originated in Bitcoin. Every four years, the new supply of Bitcoin gets cut in half. The increase in scarcity tends to create a supply shock. Because of this, every four years, Bitcoin production theoretically costs twice as much. This added cost motivates miners to HODL (hold on for dear life) until reaching ROI (return on investment) on their mining expenses such as hardware, electricity, and even opportunity cost.
Because of these halving events, crypto markets are often tied to four year cycles. In years past, BTC tends to reach a new all-time high during the two years following a halving. The decreasing block reward tends to create a supply shock. Then, for about two years, the price goes up while adjusting to the new supply. This is typically called the bull market. However, it seems to always overcorrect. After the bull market cycle, we tend to experience a bear market cycle. In the two years leading up to the next halving, the price of BTC tends to decrease until the next cycle.
Alongside the supply shock, these halving events also coincide with major election years around the globe. During election years, speculation tends to intensify the price action. This added chaos often exaggerates the volatility brought by the halving itself. In November of 2020, shortly after the US presidential election, Bitcoin smashed through its all time high of just over $19,000. During the spring of the 2024 election year, Bitcoin once again shattered its previous all time high of just over $64,000 and has ridden the election wave all the way past $108,000 in recent months.
If past trends repeat themselves, following the model of the four year cycle, there is some reason to believe that this is only the tip of the iceberg. Because of supply shock and rampant speculation, the bull market should theoretically continue well into late 2025 followed by a sharp correction starting in the winter of 2026 . . . This is not investment advice, simply an analysis of past trends.
How They Enforce Max Supply
Bitcoin
As you’ve read countless times by now, the supply of new coins for both Bitcoin and Ycash gets cut in half every four years. The 21,000,000 supply cap is a misconception. We will never actually reach 21,000,000! The block reward will continue to get cut in half until 2136, when the block reward reaches 1 satoshi (0.00000001 BTC). Theoretically, we should have another halving in 2140, but as previously mentioned, the smallest measurement of BTC is 1 satoshi.
Since the software can’t cut BTC into chunks smaller than 1 sat, starting in 2140, the block reward is rounded to 0. After the halving in 2140, new coins will never be mined again. Satoshi envisioned that by this time, the transaction fees alone will be worth enough to subsidize miners.
If you look at the chart below, the supply cap is almost here. We’ll break 20,000,000 BTC before the next halving in 2028. In the 112 years after that, less then 400,000 BTC will be added to the supply. We max out at just under 20999999.9769 BTC . . . barely short of the 21,000,000 limit.
Ycash
The tokenomics of YEC are only slightly different. While Bitcoin started in 2009 with a block reward of 50 BTC. The Ycash block reward originates in its shared history with Zcash. In 2016, Zcash mining began with a block reward of 12.5 ZEC. The first 570,000 Ycash blocks occurred before Ycash was forked from Zcash, so we share this history. Our chain history begins in 2016 with a block reward of 12.5 YEC. Effectively, we started two halvings into Bitcoin’s 33. This means that we started in 2016, after Bitcoin had already had two halvings from their starting block reward of 50.
Unlike Bitcoin, our block reward will drop to zero in the year 2136 due to the extra halving from the Blossom upgrade. After adopting the Blossom upgrade, our block time was cut from 150 seconds to 75. To compensate for the faster blocks, the Ycash block reward dropped from 6.25 to 3.125. In 2132, the block reward will drop to 1 yoshi. The software can’t round past 0.00000001. The mining reward will theoretically be half one yoshi, but one yoshi is the smallest measurement of YEC. Beginning in 2136, the software in the Ycash node will round this half yoshi to zero, and there will never be any more coins created again.
After 30 halvings we will reach the maximum supply of YEC, 20,999,999.8152 coins. If you look at the chart below, by the year 2032, there will be less than 1,000,000 unmined coins left. By 2044, we’ll have a circulating supply of 20,835,937.5. The final 164,000 coins will take 92 years to mine. In 2112, there will be 20,999,998.6224. From there, it will take 24 years to mine the final coin into existence in the year 2136.
To put all of this in perspective, my single GTX 1660 averages more than 1 block per day right now. In a single day, I mine more coins than the entire network will mine from 2112 to 2136. You can even watch new coins get mined at the new block explorer, https://explorer.ycash.xyz/.
The Bigger Picture
There is one major theory behind the halving events: scarcity creates value. The world of NFTs has taught us that this is not always true, but particularly in the case of cryptocurrencies, time is proving it to be true. Back in 2010, a single Bitcoin cost $0.10. You could’ve mined 50 BTC (worth about $5,000,000 today) per day on a relatively weak computer during those first years of Bitcoin. Today, it takes tens of thousands of dollars in electricity to mine 3.25 BTC (worth about $325,000 today).
These halving events create increased scarcity. In 2010, BTC was not scarce. Anybody with a netbook could mine it with an electricity cost of about $5 per month. The scarcity created through these halving events has caused Bitcoin production costs to increase at a magnitude that’s almost unfathomable. Similarly, after the first Ycash halving, the block reward dropped from 3.125 YEC ($0.31 today) to 1.5625 YEC (roughly $0.15) today. With each halving event, it gets twice as difficult to produce coins.
In the year 2136, the block rewards will end. By then, new coins will be so scarce that these networks will be supported by transaction fees alone. At the current moment the average Ycash fee is a fraction of a penny, 0.00001 YEC. You can verify this here. It’s almost unimaginable that 125 years from now, fees should be worth enough to pay for mining equipment.
Conclusion
Now you know how halvings work. Go on and use this knowledge of block rewards and 4 year cycles. If you’re ever wondering why crypto prices are such a roller coaster ride, take a look at the historical charts. If we’re in a global election year, we’re experiencing both a supply shock and extreme speculation. If we’re midway through a 4 year cycle, we’re likely in a bear market. Tell your grandchildren how easy it was to mine loads of YEC when you were younger!
If you want to learn more about Ycash, check out the articles below.
Doubling Down On Decentralization: An in-depth look at our most recent halving and the voluntary development fund.
How Your YEC Balance Works: How crypto works under the hood . . . in a way that normal people can understand.