Bitcoin halves due to the design of its software, which was created by a mysterious person or group using the assumed pseudonym ‘Satoshi Nakamoto’.
While Satoshi hasn’t explicitly explained the reasons behind halvings, many have speculated that the system was designed to distribute coins more quickly at the beginning to incentivise people to join the network and mine new blocks. Under this theory, block rewards were programmed to halve at regular intervals because the value of each coin rewarded was deemed likely to increase as the network expanded.
Another theory is that the halvings were put in place to introduce deflationary measures into the coin, so the number of new coins rewarded per block is pre-determined. Unlike the fiat monetary system where overprinting by central banks can result in sustained reduction in the value of the currency, the fixed total supply of bitcoin available and the pre-determined rate of printing new bitcoins hedges against this risk.
One criticism of bitcoin’s design – including halvings and the finite supply of 21 million coins – is that it encourages users to save rather than spend in the hopes that coins will increase in value over time. This may have fuelled boom and bust cycles in the past, with users hoarding coins only to cash out at key levels.
Some have also compared bitcoin to a pyramid (Ponzi) scheme for similar reasons, arguing that the system’s design has disproportionately rewarded users who got in early.
