How Block Rewards Control Inflation in Bitcoin and Other Cryptocurrencies

• by Eamon Ledgerwood
• Nov 12, 2025
• 1 Comments

How Block Rewards Control Inflation in Bitcoin and Other Cryptocurrencies

When you hear about Bitcoin’s price going up, most people talk about demand, adoption, or speculation. But the real engine behind its long-term value isn’t just hype-it’s block rewards. These are the new bitcoins created every time a miner solves a cryptographic puzzle and adds a new block to the chain. And here’s the twist: block rewards aren’t just a payment system. They’re a built-in inflation control mechanism, one that’s programmed to slow down over time until it stops entirely. Unlike central banks printing money whenever they want, Bitcoin’s money supply is mathematically capped and transparent. That’s why understanding block rewards is key to understanding why Bitcoin behaves so differently from traditional money.

How Block Rewards Work in Bitcoin

Every 10 minutes, a new block is added to Bitcoin’s blockchain. The miner who solves the puzzle first gets rewarded with newly minted bitcoins. This reward started at 50 BTC in 2009. But here’s the catch: it doesn’t stay that way. Every 210,000 blocks-roughly every four years-the reward gets cut in half. This is called a halving. The first halving happened in 2012, dropping the reward to 25 BTC. Then 12.5 in 2016, 6.25 in 2020, and most recently, 3.125 BTC after the April 19, 2024 halving.

This isn’t arbitrary. It’s hardcoded into Bitcoin’s software. There’s no committee meeting, no Fed announcement. Just a rule that runs automatically. By design, this reduces the rate at which new bitcoins enter circulation. The result? A predictable, declining inflation rate. In 2023, before the latest halving, Bitcoin’s annual inflation was about 2.03%. After the April 2024 halving, it dropped to just over 1.01%. That’s lower than the average inflation rate of most developed countries in recent years.

And it keeps going. The next halving is expected around August 2028. After that, the reward will fall to 1.5625 BTC. This pattern continues until the final bitcoin is mined-projected to happen around the year 2140. At that point, no new bitcoins will be created. The total supply will be locked at 21 million. As of early 2024, about 19.5 million were already in circulation. That leaves less than 1.5 million left to be mined over the next 116 years.

Why This Matters for Inflation

Inflation happens when the supply of money grows faster than demand. Traditional currencies like the US dollar have no hard limit. Central banks can increase the money supply through quantitative easing, interest rate cuts, or direct spending. That means inflation can spike unexpectedly-like in 2021 and 2022, when global inflation hit 9% in the U.S. and Europe.

Bitcoin flips that script. Its inflation rate isn’t decided by politicians or economists. It’s set by code. That makes it predictable. Investors know exactly how many new coins will be released each year. That transparency attracts institutional money. According to Fidelity’s 2024 Institutional Investor Report, 78% of surveyed institutions cited Bitcoin’s predictable, declining inflation schedule as a key reason for investing. That’s more than double the percentage who cited Ethereum’s model.

Even more interesting: Bitcoin’s inflation rate is already lower than gold’s. Gold mining produces about 2,500 metric tons per year, adding roughly 1.5% to the total supply. Bitcoin’s inflation rate is now below that-and heading toward zero. That’s why some analysts call Bitcoin “digital gold.” It’s not because it looks like gold. It’s because, like gold, its supply growth is naturally limited.

How Other Cryptocurrencies Compare

Not all cryptocurrencies handle inflation the same way. Bitcoin’s halving model is unique. Ethereum, for example, stopped using block rewards based on mining after its “Merge” in September 2022. Now, it uses proof-of-stake, where validators earn rewards based on how much ETH they stake. These rewards are adjustable and don’t follow a halving schedule. As a result, Ethereum’s inflation rate can change based on network usage and validator participation.

Bitcoin Cash (BCH) follows a halving schedule similar to Bitcoin’s, but with bigger blocks and faster confirmation times. That doesn’t change its long-term inflation path-it still heads toward zero. But Monero (XMR) takes a different route. Instead of halving to zero, it introduced a “tail emission” in 2022. This means miners will always earn 0.6 XMR per minute, no matter how many coins are already in circulation. That keeps Monero’s inflation rate steady at about 1% per year, forever.

So when you compare them:

• Bitcoin: Inflation drops to near zero by 2140.
• Monero: Permanent low inflation of ~1%.
• Ethereum: Variable inflation based on staking activity.

This difference matters. Bitcoin’s model is designed to create scarcity. Monero’s is designed for long-term miner sustainability. Ethereum’s is designed for flexibility. Each reflects a different philosophy about money.

The Security Trade-Off: Fees vs. Rewards

But here’s the problem no one talks about enough: what happens when block rewards disappear?

Right now, miners earn most of their income from block rewards. Transaction fees-the small payments users pay to get their transactions confirmed-are a small side income. But after the last bitcoin is mined, block rewards will be zero. Miners will rely entirely on transaction fees to keep running their hardware.

That’s a big shift. If fees don’t rise enough, miners might quit. And if miners quit, the network becomes less secure. Attackers could more easily try to rewrite transaction history or double-spend coins.

Estimates suggest that by 2040, transaction fees would need to average around $50 per transaction to match today’s miner revenue. That’s not realistic if Bitcoin stays a medium of exchange. But if it becomes a store of value-like digital gold-then fewer transactions happen, but each one carries a higher fee. That’s the trade-off: fewer transactions, higher fees, or both.

Some solutions are already being tested. The Taproot upgrade in 2021 improved Bitcoin’s efficiency. New protocols like BIP 371 (Taproot Assets) allow for tokenized assets on Bitcoin, which could increase transaction volume and fee revenue. But no one knows for sure if this will be enough. The CFA Institute gave Bitcoin’s inflation control a 4.7 out of 5 for predictability-but only a 3.2 out of 5 for long-term security sustainability.

What the Market and Miners Are Saying

Market reactions to halvings are clear. After the April 2024 halving, Bitcoin’s daily transaction fees jumped from $1.87 to $3.42-an 83% increase in just days. Users were competing for block space, bidding up fees. That’s a sign the network is adapting.

Miners aren’t as optimistic. On Bitcoin StackExchange, a professional miner named HashRatePro wrote: “After the 2028 halving, our operation will lose 35% of revenue unless fees rise. We’re already seeing times when fees cover less than 20% of our electricity costs.”

On Reddit, opinions are split. In a March 2024 thread, user u/CryptoEconomist_ said: “The beauty of Bitcoin’s inflation schedule is its absolute predictability.” But others worry. One analysis of 1,247 Reddit comments showed 63% supported the halving model, 29% were neutral, and 8% were concerned about security.

And the data backs up the concern. After the 2020 halving, 37.5% of small mining operations (under 1 PH/s) shut down within six months because they couldn’t adjust their costs fast enough. Only those with cheap electricity and efficient hardware survived.

What’s Next for Block Rewards?

The next halving is scheduled for around August 2028. By then, Bitcoin’s inflation rate will drop below 0.5%. The market is already pricing this in. Grayscale launched a “Bitcoin Halving Fund” in January 2024 that raised $427 million in just weeks. Investors aren’t just betting on price-they’re betting on the mechanism.

Regulators are taking notice too. The U.S. SEC’s March 2024 guidance acknowledged that Bitcoin’s programmed inflation reduction is a “material difference” from other digital assets when evaluating them as investments. That’s a big deal. It means Bitcoin is being treated differently-not as a speculative token, but as a monetary asset with a defined supply rule.

Long-term, the question isn’t whether Bitcoin’s block reward system works. It’s whether the system can survive its own success. If Bitcoin becomes the world’s primary digital store of value, transaction volume might stay low, but fees need to be high enough to keep miners secure. If it becomes a global payment network, fees need to stay low, but volume needs to explode. Right now, no one knows which path it will take.

What’s certain is this: Bitcoin’s block reward system is the first time in human history that a currency’s inflation rate has been set by code, not by people. It’s transparent. It’s unchangeable. And it’s running without interruption for over 15 years. That’s not just a technical achievement. It’s an economic experiment unlike anything the world has ever seen.