What is Bitcoin halving?

 

What is Bitcoin halving?

Bitcoin halving is an event programmed into Bitcoin’s code that occurs after every 210,000 blocks, or roughly every 4 years. When a halving event occurs, the mining reward per block is cut in half. 

The goal of bitcoin halving is two-fold:

Controlled Supply and Inflation: Halving contributes to bitcoin’s controlled supply schedule by gradually reducing the growth in supply over time. Bitcoin is designed to mimic resource scarcity, much like precious metals. Only 21 million bitcoins will ever exist, per the coding. Halving events cut the bitcoin creation rate by 50%, meaning it takes longer for the 21 million cap to be reached and lessening inflation rates over time. This helps maintain purchasing power for bitcoin holders.
Sustain Mining Incentives: The other goal is sustaining participation of miners who secure the Bitcoin network. Bitcoin mining verifies and adds all transactions to the public ledger through solving complex puzzles. Miners earn bitcoin each time they mine a new valid block. However, bitcoin is not infinitely mintable – the coding specifies the fixed total supply. As bitcoin adoption grows over decades, transaction fees are expected to become a larger portion of mining incentive structures than the block rewards. Halving prepares this shift by pushing miners towards earning more through transaction fees in the Bitcoin network by reducing block mining rewards over time. 

How does Bitcoin halving work?

To understand the value behind the most esteemed cryptocurrency ‘Bitcoin’, it is important to understand the 4 year cycle of Bitcoin halving. First, Bitcoin was birthed on the Genesis layer – the first block of the chain. The genesis is counted as the zeroth block. After the first transaction of 50 BTC on layer 0 in 2009, the first halving happened in November 2012. Since then, after every 210,100 blocks the miner rewards are halved. 

 

How does Bitcoin halving influence the price?

Before we delve into Bitcoin halving, let’s understand the ABCs of Bitcoin tokenomics. There are only 21 million Bitcoins and no one can generate the same original Bitcoin asset after all of it is mined by Bitcoin miners. Unlike regular currencies, bitcoin’s programmed scarcity means there is no way to print more bitcoins or implement monetary policies that could devalue holdings. This creates confidence in the system and helps drive further adoption and price appreciation through basic supply and demand economics.

 

According to statistics, the inflation rate of BTC remains under 1.8% – 2%. Bitcoin has recorded a price spike post the halving event. Halving cuts the supply of new bitcoin introduced into circulation by 50%. As the demand remains constant or increased, the supply of the asset is reduced making the asset drive up its price.

 

With only half the mining reward available after halving, many miners find operations unprofitable and shut down. Difficulty of mining goes up for remaining miners, making producing bitcoin costlier. This “stock-to-flow” ratio increase reflects higher market prices.

 

When will the next Bitcoin halving take place?

While the exact date for the next halving is unknown, it will occur after mining the 840,000th block since the last halving. Since new Bitcoins are mined approximately every 10 minutes, the next halving is projected to occur around April 2024, reducing the mining reward for each block to 3.125 BTC.