Halving agreement, also known as consensus halving, refers to a process implemented in certain blockchain-based cryptocurrencies to maintain a finite and controlled supply of tokens over time.
The halving agreement is a pre-determined event in which the reward given to miners for adding a new block to the blockchain is reduced by half. This reduction typically occurs after a certain number of blocks have been added to the chain, which is typically every four years.
For example, the Bitcoin blockchain has a halving schedule that halves the block reward every 210,000 blocks. The initial block reward for Bitcoin was 50 BTC, which was then halved to 25 BTC after the 210,000th block, then halved again to 12.5 BTC after the 420,000th block, and so on.
As the block reward decreases, the supply of new tokens being created also decreases. This helps to address concerns around inflation and ensures that the cryptocurrency remains a scarce and valuable asset.
Halving agreements can have significant effects on the price and market value of a cryptocurrency. As the supply of new tokens decreases, the demand for existing tokens may increase, driving up the price. This is because miners may require higher prices to cover their costs for mining and maintaining the blockchain.
Halving agreements can also impact the mining community, as it becomes less profitable to mine new blocks and earn rewards. This may lead to a consolidation of mining power among larger and more specialized mining operations, as smaller miners drop out of the market.
In summary, halving agreement is an essential part of blockchain-based cryptocurrencies` monetary policy, designed to maintain a finite and controlled supply of tokens over time. These agreements have significant impacts on the cryptocurrency market and mining community and are crucial to understanding the nature and behavior of these digital assets.