BITCOIN MINING
WHAT IS MINING?
People are sending Bitcoins to each other over the Bitcoin network all the time, but unless someone keeps a record of all these transactions, no-one would be able to keep track of who had paid what.
Mining is the process of spending computing power to process and verify transactions, secure the network and keep everyone in the system synchronized together. It can be perceived like the Bitcoin data centre except that it has been designed to be fully decentralized with miners operating in all countries and no individual having control over the network.
This process is referred to as "mining" as an analogy to gold mining because it is a mechanism used to issue new Bitcoins.
Because mining requires computer power, people do this work in return for money. Its the miner's job (a specific computer hardware with hashing power) to confirm those transactions, and write them into a general ledger. This general ledger is a long list of blocks, known as the "blockchain".Bitcoin mining rewards new Bitcoins to the Miners for performing this crucial task.
The video below explains mining more in detail:
BITCOIN HALVING
What is a block halving event?
As part of Bitcoin's coin issuance, miners are rewarded a certain amount of bitcoins whenever a block is produced (approximately every 10 minutes). When Bitcoin first started, 50 Bitcoins per block were given as a reward to miners. After every 210,000 blocks are mined (approximately every 4 years), the block reward halves and will keep on halving until the block reward per block becomes 0 (approximately by year 2140). As of now, the block reward is 12.5 coins per block and will decrease to 6.25 coins per block post halving.
Why was this done?
Bitcoin was designed as a deflationary currency. Like gold, the premise is that over time, the issuance of bitcoins will decrease and thus become scarcer over time. As bitcoins become scarcer and if demand for them increases over time, Bitcoin can be used as a hedge against inflation as 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 to a decrease in purchasing power. This is known as monetary debasement by inflation. A simple example would be to compare housing prices decades ago to now and you'll notice that they've increased over time!Since we know Bitcoin's issuance over time, people can rely on programmed/controlled supply.
This is helpful to understand what the current inflation rate of Bitcoin is, what the future inflation rate will be at a specific point in time, how many Bitcoins are in circulation and how many remain left to be mined.
Below is a chart showing past price performance of the two halving events:
