- Bitcoin Halving refers to a process when the amount of tokens released per block are reduced to half. The event takes place after a time period of four years or after every 210,000 blocks.
- The event is significant due to various economic and sustenance reasons.
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Bitcoin Halving is a periodic phase that occurs after every four years where the total supply of new bitcoins is reduced to half as a consequence of bitcoin mining. This process was introduced by the Bitcoin Protocol to ensure that the total supply of Bitcoin is reduced, thereby increasing its value. Find out more about Bitcoin Halving and its impact on Bitcoin’s pricing and value in our guide.
What is Bitcoin halving?
Unlike the traditional currencies which rise and fall, the maximum supply of Bitcoin is fixed at 21 million. Once the digital currency reaches its maximum of 21 million, the production of new bitcoins is stopped and reduced to 50 percent. Once the supply is reduced to half, the total quantity of bitcoin is reduced which increases its scarcity and doubles its value.
As an aftermath of the halving event, the potential rewards for all the cryptominers out there are also reduced. Moreover, due to scarcity, there is a sudden surge in the bitcoin pricing following the halving process which motivates them to continue mining.
Ultimately, despite reducing the potential rewards for cryptominers out there, the Halving process aims to maintain the Bitcoin value.
The event was introduced into the Bitcoin blockchain network’s protocol for maintaining its value. This feature attracts cryptominers and early adopters to begin mining earlier by reducing mining rewards after every four years. Miners are likely to start mining earlier when the rewards are comparatively higher before the halving event. But post-halving events when the rewards are decreased with time, there will be an increased competition among miners for those rewards.
Therefore, Bitcoin Halving doubles hashing power of the network and also prevents a sudden influx of Bitcoin in the market.
Twenty-one million Bitcoin is expected to be in circulation, and until the number of bitcoins mined hits this target, Bitcoin halving will continue to happen. The last Bitcoin will likely be mined in the year 2140 when the Bitcoin in circulation has hit the 21 million benchmark.
Importance of Bitcoin halving
Bitcoin halving is a mechanism designed by the creator(s) to prevent bitcoin from falling under the inflationary force.
Bitcoin halving prevents bitcoin from decreasing in value with time as experienced by fiat currencies subject to inflationary forces when the supply of currency keeps increasing with time.
As explained by Vitalik Buterin in Bitcoin magazine, Bitcoin is designed to simulate gold. The market value of gold keeps increasing due to a continuing reduction in the amount of gold mined.
Therefore, bitcoin halving is a mechanism put in place to drive the value of Bitcoin upward, while the supply of new bitcoin is reduced by half.
Impact of Bitcoin Halving on Bitcoin’s Price
Cryptominers and experts observed a positive link between Bitcoin Halving and Bitcoin pricing in the former Halving events. However, it is important to note that several factors influence Bitcoin’s price and market conditions including geopolitical challenges and macroeconomic issues.
First Bitcoin Halving: After the first halving process, the bitcoin price increased from $11 to $12. By the next year, the currency hit an all time high record of $1000.
Second Bitcoin Halving: The second halving event occurred in 2016 when bitcoin completed 420,000 blocks. Initially, there were fluctuations and the prices varied between $500 to $1000. However, by the end of next year, the prices increased by $20,000 in December.
Third Bitcoin Halving: The proces rose to over $60,000 following the third halving event in 2020.
It is also worth mentioning that the past performance is not always indicative of the future outcomes. Moreover, cryptocurrencies can be linked with wider financial markets which makes it hard to determine if Halving was the exact reason for the increase in price.
When is the next Bitcoin halving?
It is estimated that we are only 60,000 blocks away from the next halving event which is highly likely to take place in the spring of the next year.
Despite its recent string of losses, the digital currency has been experiencing steady increases since last year. It has grown up to 40 percent, renewing hopes in the cryptomarket. Many experts predict that the increase will continue in future and might also be positively influenced by the halving event.
This will result in a 50% reduction in the amount of new bitcoin earned for every block added to the blockchain from 6.25 bitcoins to just over 3 bitcoins.
How to trade 2024 bitcoin halving
If you’re thinking of profiting from the next coming halving, there are two ways you can go about it.
- Buy, hoard and sell bitcoin from an exchange platform
- Buy CFD. CFD (Contract for Difference) allows you to buy or sell Bitcoins based on the upward or downward price prediction. For every point the price of Bitcoin goes up in your favor, you make gain based on the number of CFD units you purchased.
With CFD,
- You don’t need a wallet or an account before trading
- You can make predictions on the value of bitcoin
- You can Leverage on CFD by depositing to gain exposure to a broad market spectrum
- You enjoy a tax-free profit
This is not investment or financial advice but this is what I am doing…
What happened the last time bitcoin was halved?
The last time bitcoin was halved in 2020, it marked the beginning of a significant surge in the price of bitcoin. The event drove an increase in demand for Bitcoin as investors rushed to acquire the currency before its price rose drastically. As a result, miners who had been earning 12.5 Bitcoin for each block solved saw their rewards cut down to 6.25 BTC per block and were forced to adjust their operations accordingly. This changed set-up led to higher fees on the network since miners had less incentive to process small transactions due to reduced reward rates and an influx of new users with more expensive transactions such as buying large amounts of BTC or converting fiat currencies into cryptocurrency.
Consequently, numerous investors cashed out if they felt that prices had risen enough after the halving event and following market reaction which presented many arbitrage opportunities between exchanges that offered different pricing models at varying times during this period.
Ultimately, after months of gradual growth and speculation prior to the halving itself, bitcoin went on a sometimes volatile but largely upward trend until reaching all-time highs late November 2020 just weeks later.. This surge was followed by slighter declines in the following months, though overall the long-term effects of the halving have been positive for holders and believers of Bitcoin. This event has since served as an example for how influential halvings can be over bitcoin’s market performance and prices, providing hope for future such events to follow suit and trigger similar positive results.
How does Bitcoin halving work?
The bitcoin halving was programmed by the creator(s) of bitcoin (Satoshi Nakamoto, a man of unknown origin) to reduce the rewards of miners for every 210,000 blocks of validated transactions added to the blockchain. This happens once in four years (give or take depending on how fast the mining target is met).
Miners compete to solve complex computational algorithms (maths problems) on the bitcoin blockchain network.
Two things happen when miners solve complex computational algorithms (a miner is said to have mined when he solves this complex maths problem).
- New bitcoins are added in the circulation as rewards for mining. An average of 144 blocks is mined per day. When multiplied by 6.25 bitcoin rewards per block, a total of 1,800 new bitcoins are added to the bitcoin circulation daily.
- By mining bitcoins, the miners make a bitcoin blockchain network more secure by validating bitcoin transactions. The more the number of miners, the stronger the bitcoin blockchain network gets. It is estimated that a hacker will need 51% of the total hash power (computational power) to hack into the bitcoin network.
What is the fate of miners when bitcoin mining reward is halved?
When bitcoin halving takes place, the bitcoin blockchain network increases the complexity of the computational algorithms miners solve. (mining gets increasingly difficult in a similar way mining gold from a gold mine keeps getting harder and deeper)
This will require additional computational power to mine (solve the increasingly complex computational algorithms) blocks.
At this stage, more miners will have to pool together computational powers to mine blocks and share the profit. E.g., a pool of 10,000 miners combining computational powers will share 6.25BTC for every block added to the bitcoin blockchain.
If the anticipated bitcoin halving does not force the bitcoin value up, bitcoin blockchain mining becomes less profitable for miners as a direct result of a 50% decrease in reward for every block of validated transactions added to the blockchain. This will also translate to an increase in the cost of electricity consumption and hardware upgrading. This can make some miners leave the bitcoin blockchain.
Bitcoin blockchain network automatically adjusts the speed at which blocks are added to the bitcoin blockchain in relation to the computational power required to mine a block – by adjusting the complexity of the computational algorithms needed to mine a block.
In the early days of bitcoin, mining was done with CPUs, which was upgraded to GPU (Graphics Processing Units) due to the increasing difficulty of solving computational algorithms. Presently, the ASIC (Application Specific Integrated Circuit) used in mining has a computational power of roughly 700 GPUs.
The more the power available on the network to mine a block, the more challenging it gets to solve computational algorithms validating a transaction.
What happens when all 21 million bitcoins have been mined?
When all 21 million Bitcoins are in circulation by the year 2140, miners will no longer profit by receiving new bitcoins for every block of transactions validated and added to the blockchain. Instead, miners will profit only from transaction fees charged for transactions done with Bitcoins.
When this happens, Bitcoin becomes a deflationary currency. This result in
- A decrease in ‘spendable bitcoin supply,’ which can be caused by several factors, one of which is losing bitcoin to an invalid address.
- This will increase the demand for bitcoin due to restricted supply.
Why does bitcoin halve?
The idea of bitcoin halving was programmed into the bitcoin blockchain network to prevent the bitcoin from developing inflationary tendencies like the fiat currencies.
Satoshi Nakamoto explained the idea of a deflationary bitcoin (bitcoin halving) in his words:” “If the coinage does not increase as fast as demand, the opposite of inflation will occur, and early holders of the currency will see its value increase. In an economy, money has to be distributed and produced somehow, and a constant rate seems to be the best formula.”
However, critics argue that a deflationary bitcoin will be subject to price volatility as experienced in the upward-downward of bitcoin as witnessed in the past years.
How many bitcoins are there, and when will they all be mined
There are 21 million Bitcoins, of which 17,982,925 BTC is in circulation. This figure represents 86% of the total bitcoins.
Although this number increases by 12.5BTC for every block added to the blockchain.
It is estimated that the last of the 21 million BTC will be mined somewhere in 2140, 120 years from now.
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