Bitcoin halving: What is it and why is it important?

Bitcoin will undergo an important event called “halving” in 2024. Discover what a Bitcoin halving is and why it matters.

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Few events are as important in the life cycle of Bitcoin – the world’s number one cryptocurrency – as a “halving”. This is a clever feature built into the Bitcoin network that’s meant to keep the digital asset scarce and, therefore, valuable.

Discover everything you need to know about Bitcoin halving, including how it works, when and how often it happens, and what it means for the price of Bitcoin.

What is Bitcoin halving?

Bitcoin halving is when the rewards given to miners for successfully mining Bitcoin are reduced by half.

Bitcoin mining involves solving a complex mathematical problem known as a ‘hash puzzle”. Essentially, miners compete to find the solution that adds a new block of transactions to the blockchain. For their troubles, they’re rewarded with freshly minted Bitcoins, plus any transaction fees paid by users for the transactions in that block.

When Bitcoin was first created, the block reward was set at 50 BTC. Following each halving event, this reward goes down by half. As of the last halving, which happened in 2020, miners get 6.25 BTC for each block they successfully add to the blockchain.

When do Bitcoin halvings happen?

Bitcoin halving occurs every 210,000 blocks. It takes an average of 10 minutes to mine a single block, so a halving usually takes place once every 4 years.

The first halving happened on 28 November 2012, when the block rewards were slashed from 50 to 25 BTC. The second and third halvings occurred on 9 July 9 2016, and 11 May 2020, reducing the rewards to 12.5 BTC and 6.25 BTC, respectively.

Bitcoin halving will continue until all of the 21 million available Bitcoins are mined, which is expected to happen around the year 2140. At the time of writing, approximately 19 million Bitcoins have been mined and are in circulation.

When is the next halving event?

The next Bitcoin halving event will happen sometime in late April or early May 2024. This halving will see the block rewards for miners go down from the current amount of 6.25 BTC to 3.125 BTC.

What happens when Bitcoin halves?

Reducing the rewards that miners get for validating new transactions and adding them to the blockchain slows down the rate at which new Bitcoins are generated.

For example, if each block resulted in the creation of 12.5 Bitcoins, these become 6.25 Bitcoins post-halving. This means that fewer Bitcoins are added to the overall supply as time goes on.

Halving directly impacts miners’ profitability, with their potential earnings from mining new blocks decreasing overnight. The decreased profits could force the less efficient ones out of the market.

How does Bitcoin halving affect the price?

There’s often a heightened amount of media and public attention on Bitcoin in the run-up to a halving. This can drive up the asset’s price.

The halving event itself further tightens Bitcoin’s supply. According to the basics of supply and demand, this can fuel a further price increase, particularly if demand remains steady or rises. We’ve seen previous halvings spark a significant increase in Bitcoin’s value.

For example, the first Bitcoin halving in 2012 saw its price rise from $12 to over $1,200 in a span of a year. The second halving in 2016 followed a similar pattern, with

Bitcoin’s price surging from around $670 to $2,550 a year later. The most recent halving, which took place in 2020, triggered a Bitcoin bull run that eventually peaked at almost $69,000 in 2021.

It’s important to note that, while past halvings have resulted in a bull market for Bitcoin, saying this is purely because of the halving is an oversimplification of the situation. Other factors – like regulatory changes, institutional adoption, and broader financial market trends – can also affect Bitcoin’s price.

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Why do halvings occur?

Bitcoin halving isn’t just for show. It’s a deliberate mechanism programmed into the Bitcoin network. It’s there to create a self-regulating system that mirrors the scarcity and hard cap of precious metals such as gold.

Bitcoin’s anonymous creator, Satoshi Nakamoto, designed halving events to regulate the rate of new coin generation. The ultimate goal is to counteract inflation and preserve Bitcoin’s purchasing power.

This built-in scarcity is one of the main features that differentiates Bitcoin from both fiat currencies, which lose a percentage of their purchase value each year to
inflation, and other cryptocurrencies that have an unlimited supply, like Dogecoin.

Should I know when Bitcoin halving happens?

Absolutely. Staying in the loop about Bitcoin halving is crucial for several good reasons and for different groups of people.

Crypto investors or traders

Knowledge of an upcoming halving can inform strategies about buying, holding, or selling Bitcoin. As mentioned, Bitcoin halvings have historically been associated with upward price movements. This presents an opportunity for gains. Just remember that past results don’t necessarily guarantee future success.

Miners

The awareness of when a halving will occur allows miners to plan for decreased block rewards. They can assess whether their operations are likely to remain viable and what adjustments (if any) they need to make to maintain profitability.

Advantages of a Bitcoin halving

  1. Scarcity which increases value. Halvings reinforce Bitcoin’s scarcity. It can potentially increase Bitcoin’s value over time as the supply of new coins entering the market slows down.
  2. Greater market interest. Halving events capture significant attention from the media and the public. This can energise market activity, draw new participants into the crypto sphere and potentially boost Bitcoin’s price and adoption rate.
  3. Long-term sustainability. Halvings ensures that Bitcoin remains a deflationary asset – something that typically increases in value over time due to a decrease in its supply.

Pros and Cons

Pros

  • Promotes scarcity, which can increase the value of Bitcoin.
  • Can increase Bitcoin’s purchasing power due to reduced supply, boosting its appeal as an effective hedge against rising prices (i.e., inflation).
  • Encourages miners to seek more efficient mining solutions.

Cons

  • Cuts into miners’ profitability by reducing their earnings.
  • Can deter some investors and slow down the rate of mainstream adoption.
  • Uncertain results on the impact of future halvings.
  • The exit of less efficient miners could heighten the risk of attack due to a reduced Bitcoin hash rate.

Bottom line

Bitcoin halvings are a key event in the crypto calendar. They tend to generate a lot of excitement and speculation, but their real impact lies in making sure Bitcoin’s value continues to increase over time due to the decrease in supply.

For crypto investors or enthusiasts, there’s potential to profit from this event, given the historical tendency for Bitcoin’s price to rise in its aftermath.
However, it’s important to remember that the crypto market is notoriously unpredictable. Past performance doesn’t guarantee future outcomes.

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