On December 11, 2017, the ‘green coin’ Vertcoin, a popular altcoin, underwent its first block reward halving. As a result, now the reward for all freshly mined blocks will drop from 50 VTC to 25 VTC. The halving took place on block 840,000.
Vertcoin: A Basic Understanding
Vertcoin is a cryptocurrency with a currency-use focus, which is highly pro-decentralized mining and strongly anti-ASIC. The project is Lyra2RE-based, with blocks every 2-1/2 minutes. The aggregate eventual Vertcoin supply is 84 million. Although on the face of it Vertcoin shares various features with Litecoin, it differs substantially in terms of its basic technology and the core philosophy that guides it.
Resistance to ASIC
Vertcoin’s most prominent difference is its staunch resistance to ASIC. The Vertcoin team has officially said that they are committed to taking whatever measures are required to protect Vertcoin from specialized mining equipment and ensure that mining of this coin will always be possible with consumer-level hardware.
The Vertcoin team believes that if ASICs are involved in the mining of cryptocurrency, it leads to an environment where the manufacturers of ASIC eventually control ASIC coins along with a vested interest in pursuing profits over progress. To better understand this sentiment, one must examine the relationship between Bitmain, the Chinese mining giant, and Bitcoin and Litecoin.
In China, Bitmain runs multiple industrial-scale mining operations, and as a result exerts a significant amount of control over Bitcoin and Litecoin. In plain terms, the Vertcoin team is resisting this situation just like the makers of Thor III (Thor could not break out of a net!) and Planet of the Apes III (the avalanche kills all the humans but not one ape?!) wanted to resist making their respective bad movies. For them, it’s too late… but so far Vertcoin has managed to avoid coming under the influence of their own industry giant.
Furthermore, Vertcoin is SegWit-activated, and at present is undergoing trials to support transactions of the Lightning Network. Vertcoin commands a large and dedicated following on the Internet.
Impact of Reward Halving on Miners
A common question among miners is that as the mining reward is being halved, does that imply that a miner will now receive fewer coins from mining? The answer, in short, is yes. With the halving in place, assuming that the hash rate and the number of miners remains by and large constant, one should expect lesser VTC payout as compared to the previous blocks.
This will result in a drop in the network hash, invariably because miners will shut down the rigs, as they may not see mining as a lucrative activity any longer. However, within a few blocks, the difficulty of mining will also go down, because now there will be fewer miners in the network.
One can expect that eventually the hash rate and the number of miners will find equilibrium relative to the prevailing price. It is also pertinent to note that miners are paid not through mining rewards alone. Miners are paid in the form of block reward as well as a transaction fee that is associated with every transaction that occurs in the mined block.
The assumption involved here is that with the passage of time, network hash and transaction volume will increase, gradually shifting payout of miners from block reward to transaction fee. As Vertcoin usually does not have a full block, the fee is very low and the miners are nearly guaranteed to have their transactions picked up within the next block that is mined.
This is different from Bitcoin, where almost every block remains full, and to ensure that your transaction gets quickly picked up you are required to pay a marginally higher transaction fee.
To have a basic comparison of Bitcoin to Vertcoin, one may consider that every mined Vertcoin block on average today includes block rewards of 50 VTC plus a transaction fee of around 0.05 VTC on average. On the other hand, Bitcoin at present pays miners a block reward of 12.5 BTC along with a transaction fee of 4.3 BTC on average.
Wider Economic Effects of Reward Halving
Diminishing mining returns are built into the design of most cryptocurrencies. The goal is to control the supply and make sure that fresh coins are issued for a longer time period. With the reward halving of Vertcoin, it is now ensured that its maximum supply will be 84 million. The next halving event will occur about four years from now, and the block rewards will then fall to 12.5 VTC. The process is continual in the long run as the demand for the cryptocurrency continues to rise in relation to the supply.
According to Bryan Goodson from the development team at Vertcoin, after the halving events of Bitcoin and Litecoin, there has been no long-term negative impact in their pricing that could have been triggered by halving. While it is difficult to determine the precise effect that the halving of Vertcoin will have, history has shown that halving is actually followed by a stronger and more robust economy for the coin.