On December 12, 2017 Vertcoin will undergo its first ever block reward subsidy halving. The halving will occur on block 840,000 and reduce mining rewards by 50% from 50 VTC per block to 25 VTC per block. This halving occurs roughly every 4 years and will continue to half until the supply is fully emitted. But what does this all really mean? Will mining be impacted? What about the value of the coin? Should we expect a spike in price? All good questions and all will be answered. Let’s get into it.
Where do Vertcoins come from?
Before I dive into the specifics of halving, let’s address a simple yet commonly misunderstood concept: Where do new Vertcoins come from? Within every block that is mined and added to the blockchain, there is a transaction that contains a 50 VTC mining reward. This reward is sent to the miner (or miners in a pool) that solve this block. When you mine VTC you’re receiving brand new freshly created Vertcoins. This translates to roughly 28,800 new VTC created and added to the total supply daily.
Vertcoin has a max supply of 84,000,000, four times the max supply of Bitcoin. Every 4 years the subsidy will half until the last Vertcoin is emitted. Like gold there is a finite supply of Vertcoin making it a deflationary asset. This means with time, every Vertcoin increases in rarity, become harder to obtain and ultimately increases in value.
How does this affect miners
So the mining reward is being cut in half, as a miner, does this mean I’ll receive less coins from mining?
In short, yes. At halving, assuming the number of miners and hash rate remains somewhat consistent, everyone should expect less VTC paid out compared to the blocks prior. This will invariably cause a drop in network hash due to miners shutting down their rigs as they will find mining not be as profitable. Within a few blocks however, the mining difficulty will also drop due to there being less miners on the network and we should expect miner and hash rate to eventually find an equilibrium relative to the price at the time.
Mining rewards aren’t the only way miners are paid however. Miners are paid with both the block reward and transaction fees associated with each transaction within the mined block.
The assumption here is, as time goes on, transaction volume and network hash will increase, slowly shifting miner payouts from block rewards to transaction fees. Because Vertcoin rarely has a full block, we are paying very low fees and are almost guaranteed to have our transactions picked up in the next mined block. Unlike Bitcoin where nearly every block is full and to guarantee your transaction to be picked up quickly, you have to pay slightly higher transaction fees.
To compare Vertcoin to Bitcoin, today on average each mined Vertcoin block contains a block reward of 50 VTC + transactions fees averaging around 0.05 VTC. Bitcoin on the other hand currently is currently paying miners a 12.5 BTC block reward and averaging 4.3 BTC in transaction fees.
Great, I understand what the halving is and it’s effect on miners and rewards, but what about investors? Should I expect the price to be impacted by the halving at all?
It’s nearly impossible to predict if the price will see positive or negative movement as a direct result of the halving. It will certainly affect the coin economics, but we can only speculate at this point. Let’s look back at Bitcoin and Litecoin during their halvings to compare.
The image above shows the the Bitcoin price and and network hashrate. As you can see, at halving the hashrate fell almost immediately while the price remained stable for a little over a month afterward. It took around four months for the network hash to recover while price was seemingly unaffected.
The Litecoin chart on the other hand tells a different story. At their first halving, their network hash dipped for a week before completely recovering and exceeding network hash at the time of halving. The price was fluctuating up until halving but stabilized afterward. It took nearly six months to see any significant increase in price.
In conclusion, the halving is something to celebrate! It’s a major milestone for Vertcoin and will be a recurring event in it’s early life cycle. Block rewards are being halved from 50 VTC to 25 VTC. We should expect a short term decrease in mining profitability and network hashrate, both of which should stabilize in the following weeks /months. Price is unpredictable, but historically LTC and BTC saw no long term negative affects in price due to halving. We’re entering uncharted waters but there is no need for fear uncertainty or doubt. Let’s end 2017 with a halving and bring on 2018 with a bang!