Halving is the event of slashing Bitcoin’s mining rewards every 210,000 blocks, or roughly every four years. Read all about it here.
Table of Contents
Overview
What Is Bitcoin Halving?
When Is the Next Bitcoin Halving?
Deep Dive into Blockchain
How Are Miners Rewarded?
Why Halving Matters?
The Big Picture
What About Bitcoin’s Price?
Halving and the Way Forward
Overview
Bitcoin’s halving is a milestone event for the crypto space. Essentially, halving pushes back the moment we see all 21 million BTC tokens pulled out of their cryptographic hash puzzles.
Satoshi Nakamoto, the individual or group who created Bitcoin, programmed it to a fixed amount of 21 million coins. In other words, the total amount of Bitcoin can never exceed 21 million. Presently, miners have picked up just over 19 million through a process called Bitcoin mining.
This amount is over 90% of the total supply with mining having started with the creation of Bitcoin 15 years ago. That leaves just about 2 million tokens to be unearthed before the final Bitcoin enters our dimension. How long should we wait until this mammoth of a milestone happens? More than a century, or around the year 2140, according to forecasting wizards.
The logic behind this peculiar mechanism lies in the so-called halving and this guide will help you understand all about it.
What Is Bitcoin Halving?
Halving, in its simplest form, is the process of gradually reducing the rewards of Bitcoin mining. As we mentioned, Satoshi Nakamoto originally hard-coded Bitcoin to a fixed supply of 21 million. All of them will come to life at an increasingly slower rate. More precisely, the pace at which Bitcoin is created is “halved” every 210,000 blocks.
The current block reward is 6.25 Bitcoin as the last halving occurred on May 11th, 2020.
When’s the Next Bitcoin Halving?
In April 2024, miners will add the next batch of 210,000 blocks. And that only means one thing – they will have their revenue immediately slashed in half to 3.125 Bitcoin.
All halvings are evenly spread out approximately every four years, consistent with Bitcoin’s hard-coded design. This way, supply will keep increasing, just at a slower clip. The reason is simple – the Bitcoin halving rewards will continue to reduce.
Deep Dive into Blockchain
In order for new Bitcoin to come into circulation, miners need to create blocks in a chain, hence the term ‘blockchain’.
Network operators—the hardworking miners—uncover blocks through computer-powered mining operations. These crypto diggers compute hashes as quickly as possible. What they do is search for the successful fixed-length output that they add to the block.
The more hashes per second (hashrate), the more chances for hacking out new blocks and adding them to the blockchain.
How Are Miners Rewarded?
Generally, miners have two ways to reward themselves for the effort. The first one is to earn revenue from transaction fees of users who send and receive Bitcoin. That’s when they act as decentralized network operators and validate transactions without a central authority.
At their height during the crypto boom in April 2021, the Bitcoin network fees reached as much as $60 per transaction and took hours to complete. After all, the network can only handle 4-7 transactions per second. To compare, payment giant Visa can validate 24,000 transactions per second.
Average transaction fee of Bitcoin, USD
Timeframe: April, 2021
Source: bitinfocharts.com/co…transactionfees.html
The other way to reward Bitcoin miners is to let them pocket the newly-minted Bitcoin contained in the block. Halving is basically a reward system for miners.
But more broadly, halving is part of the proof-of-work model associated with high levels of energy consumption. Millions of mining rigs soak up that energy and crank out new Bitcoin.
Why Halving Matters?
Halving the block reward for mining Bitcoin is a way to protect its integrity. This immutable feature of the OG crypto makes it stand out as a unique asset class. In this light, it is also an alternative to inflation-prone national currencies, also known as fiat money.
With that in mind, in a world that craves disruptive innovation, a technology that’s rewiring the global financial system has progressively moved into the limelight. The growing role of Bitcoin as a new investment vehicle is apparent, factoring in the elevated investor appetite.
Bitcoin transacts tens of billions of dollars of daily volumes, with a peak of more than $126 billion on May 19, 2021. The figure is sufficient to prove it has piqued the interest of enough crowds to form a market around it.
Before we revisit Bitcoin as an investable asset, let’s take a breather and trace the original crypto back to its origins where halving was introduced.
The Big Picture
Just over 15 years ago, the mysterious Satoshi Nakamoto mined the initial “genesis” block. For the effort, the clandestine developer(s) earned a hefty reward of 50 Bitcoin. And also bothered to leave a message hooked to the chunk of transactions. The message read: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Since then, the Bitcoin network has witnessed three halving events:
- On November 28, 2012, Bitcoin’s block reward was cut from 50 BTC to 25 BTC.
- On July 9, 2016, Bitcoin’s block reward was slashed from 25 per block to 12.5 BTC.
- The last one occurred on May 11, 2020, when the reward was axed to 6.25 BTC.
- The next Bitcoin halving event is on deck for April 19, 2024. Rewards will fall to 3.125 BTC.
The Bitcoin halving dates may vary and we’re yet to get a confirmation over the next one. Estimations indicate that every 10 minutes or so all network operators add a new block to the Bitcoin blockchain. With the current reward of 6.25 Bitcoin per block, miners dig out around 900 new Bitcoin a day.
At today’s prices, this is equal to around $50 million worth of Bitcoin extracted daily. This is where the halving becomes interesting not just to the geeks among us.
Halving events play a key part in shaping up supply and demand and weigh on the price of Bitcoin. Speaking of price movement, how does the rate at which new Bitcoin is churned out affect valuations?
What About Bitcoin’s Price?
Bitcoin, as the world’s first cryptocurrency in a sea of many, is the quintessence of scarcity premium. Investment professionals are quick to say that Bitcoin carries a unique glamor as the only large tradeable asset with a predictable emission leading to a hard cap.
In that light, analysts consider Bitcoin to be the newest entrant in the store-of-value category. An investment product that holds its purchasing power over time. Ideally coming with consistent price increases.
This is possible thanks to halving – the brilliant mechanism hard-wired into the Bitcoin protocol. The minds behind the original digital currency conceived it as deflationary. A concept alien to the present financial system, flooded with central-bank cash and government stimulus.
The reason is that, contrary to fiat currencies that inflate over time, Bitcoin should not be debased by inflation. Satoshi Nakamoto explained this inflation-rate flaw in an online forum around the time of Bitcoin’s inception.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Halving and the Way Forward
If there’s a need to draw broad conclusions, here are some of the more salient points to make a compelling argument.
Bitcoin’s purchasing power is likely to avoid debasement thanks to the halving mechanism. With less than 10% of Bitcoin still to come to the surface, it will take more than 100 years for the last unmined Bitcoin to pop out.
Once all the 21 million Bitcoin spring to life, miners will no longer stake their livelihood on uncovering new tokens. Instead, they will earn revenue from network fees for their work on validating transactions. But that’s only if the network sticks to the plan.
FAQ
❔ “What is the purpose of halving?”
► Halving maintains a decreasing pace of block rewards, which emphasizes on the idea of scarcity in Bitcoin.
❔“When is the next Bitcoin halving?”
► The next Bitcoin halving event is scheduled to occur on April 19, 2024. This date is approximate, and the actual date may be different, depending on the time it takes to complete one full batch of 210,000 blocks.
❔“Is halving related to price increase?”
► Technically, when the supply of new Bitcoin is cut in half, and demand remains the same, prices may go up. But the price discovery of Bitcoin does not obey archetype models of economics.
❔“When will the last Bitcoin be mined?”
► Estimates point that the last available Bitcoin will be mined in the year 2140.
