What is a block halving event?
As part of Litecoin’s coin issuance, miners are rewarded a certain amount of litecoins whenever a block is produced (approximately every 2.5 minutes). When Litecoin first started, 50 litecoins per block were given as a reward to miners. After every 840,000 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 2142). 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?
Litecoin was designed as a deflationary currency. Like gold, the premise is that over time, the issuance of litecoins will decrease and thus become scarcer over time. As litecoins become scarcer and if demand for them increases over time, Litecoin 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!
Predictable monetary supply
Since we know Litecoin’s issuance over time, people can rely on programmed/controlled supply. This is helpful to understand what the current inflation rate of Litecoin is, what the future inflation rate will be at a specific point in time, how many litecoins are in circulation and how many remain left to be mined.
Who controls the issuance of Litecoin?
The network itself controls the issuance of litecoins, derived by consensus through all Litecoin participants. Ever since Litecoin was first designed, the following consensus rules exist to this day:
- 84,000,000 litecoins to ever be produced
- Target of 2.5-minute block intervals
- Halving event occuring every 840,000 blocks (approximately every 4 years)
- Block reward which starts at 50 and halves continually every halving event until it reaches 0 (approximately by year 2142)
Any change to these parameters requires all Litecoin participants to agree by consensus to approve the change.
Past halving event dates
The first halving event occurred on the 25th of August, 2015 at block height 840,000. The second halving event occurred on the 5th of August, 2019 at block height 1,680,000.
Past halving price performance
It is always a debate on what Litecoin will do in terms of pricing for a halving event. Some people believe that the halving is already priced in by the market and thus there’s no expectation for the price to do anything. Others believe that due to price equilibrium, a halving of supply should cause an increase in price if demand for litecoins is equal or greater than what it was before the halving event. Below is a chart showing past price performance of the two halving events: