The Blockchain Subsidy

One of the least discussed elements of Bitcoin is how new coins are created every 10 minutes and the effects this has on the price. By design every ten minutes 25 BTC will be generated by a miner. Years ago the “block reward” was 50 BTC, it’s starting value which halves every 4 years. Next year it will reduce to 12.5 BTC, and again in 2020 to 6.25 BTC.

Read about Bitcoin on social media or forums and you’ll hear every reason under the sun about why the price is going up or down. The reality is that within the Bitcoin economy nothing exists at the scale of the block reward, which subsidizes mining.

At 25 BTC per block that’s 3600 BTC or roughly $1,164,420 per day. That’s based on the current exchange rate, which is $325 at the time of writing in November 2015. Assuming the price doesn’t increase, in over a decade from now the mining subsidy will still be close to $100,000,000 per year.

This isn’t meant to be an attack on Bitcoin or it’s method of distributing new coins. The goal is to put into perspective what affects the price. If the current market was to accept and stay with a price of $700, it would mean paying nearly a trillion dollars to miners in subsidy annually.

What is a fair price for a global payment network free of centralized control?