Bitcoin 101: The Block Subsidy

In 21 Million we discussed how the block subsidy is how bitcoin implements one prong of its monetary policy – its predetermined release schedule (number 3, below).

Remember, bitcoin’s monetary policy consists of three rules:

1. Predetermined, fixed supply of 21 million bitcoin
2. Released to the market every 10 minutes, on average (every time a new block is mined)
3. On a schedule of 50 bitcoin per block beginning with the Genesis block (the first block ever mined), and halving every four years (210,000 blocks) until the final satoshi is released around the year 2140.

The block subsidy is the amount of bitcoin awarded to the miner who successfully mines the next block. A block is a batch of transactions that users of the bitcoin network wish to execute.

As depicted in the table above, the block subsidy is halved every 210,000 blocks, which equates to about four years. This is the much covered “bitcoin halving” you may hear about from time to time in the news.

Today (April 14, 2024), as we sit about one week away from the fourth bitcoin halving, just 15 years after bitcoin was invented but 116 years from when the last satoshi will be released, approximately 93% of the total bitcoin supply of 21 million has already been released to the market.

Beyond just being a method through which bitcoin monetary policy is implemented, the block subsidy also solves two critical problems for bitcoin:

1. It serves as a fair, open, competitive, market-based solution for distributing bitcoin into circulation.
2. It gives miners ample incentive to commit computing power to mining new blocks during bitcoin’s adoption phase, before a robust fee market for including transactions in blocks has been established.

Since the computing power, or hashrate, honest miners are committing to mining new blocks is the hurdle which nefarious miners must overcome to 51% attack the network, the block subsidy effectively bootstraps a security budget for the bitcoin blockchain.

Around the year 2140, the last satoshi will be mined and the block subsidy will fall to zero. At this point, the only revenue bitcoin miners will receive will be from fees paid by users to add transactions to the bitcoin blockchain.

We will learn more about bitcoin’s security budget in a future post, but for now let’s consider the problem implied in number 1, above.

Let’s say you create a new, global, digital currency.

How would you fairly distribute units of that currency to the global population?