Bitcoin Halving: What It Is

Bitcoin is the largest crypto token according to market capitalization.

Bitcoin uses the Proof of Work (PoW) algorithm, whereby miners compete to validate transactions and create new blocks.

For every new block successfully created, the miners get a reward.

In rare cases, these rewards get split into two by Bitcoin halving.

Bitcoin halving is part of the smart contract mechanism running Bitcoin. Once the blocks mined reach 210,000, the rewards get split.

This split mainly occurs at a four years interval.

The first halving was in November 2012. Another one occurred in July 2016, followed by that in May 2020.

The mining rewards dropped from 50 BTC to 25 to 12.5 and are presently at 6.25 BTC.

You might be wondering how and why the first set of miners got 50 BTC for successfully creating new blocks, and today, the same set of procedures attracts 6.25 BTC.

This article will unwrap the details behind halving, when it is expected to occur and why miners keep mining despite the fall in reward.

Let’s dig in.

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What Is Bitcoin?

Bitcoin is the largest digital token by market capitalization. The digitized currency was launched in 2009 by “mysterious” Satoshi Nakamoto.

As of May 2022, one BTC is worth 36,885.50 US dollars falling from an all-time high of $65,000 in February, April, and November 2021. Bitcoin has the largest market capitalization of $775 billion on the crypto market.

BTC is the currency or token of Bitcoin. It is a virtual means of exchange, transaction, and purchase, and Bitcoin uses cryptography.

Bitcoin has a secure storage and transmission that stores your BTC on your blockchain wallet.

The virtual asset became the toast of all due to its safety feature and the lower transaction fees than traditional financial s.

Due to its decentralized nature and the Proof of Work (POW) algorithm, Bitcoin requires several nodes or miners to verify the validity of a transaction.

These miners and their nodes compete to successfully create a new block on the blockchain network in Bitcoin mining. Whichever miner gets to create the new block; the network rewards them.

The reward is for the effort put in processing the transactions, running their computer hardware, and solving complex equations.

However, in some instances, miners do not get the full reward. In this instance, the reward given to miners for successfully processing transactions will be cut in half.

This instance in Bitcoin mining is called “Bitcoin Halving.”

What Is Bitcoin Halving?

Bitcoin halving is when the payout for mining a new block is split into two to enforce synthetic price inflation at intervals (every four years).

According to the Bitcoin smart contract, the code on which Bitcoin is running, after every 210,000 mined blocks (an approximate four-year interval), the reward given to Bitcoin miners is cut in half.

Bitcoin Halving is a significant event in the blockchain network. When halving occurs, it signifies another drop in the rate of new Bitcoins being produced.

Bitcoin is gradually moving towards its infinite supply of 21million. As of October 2021, there are approximately an18.8million Bitcoins in circulation.

Historical Events of Bitcoin Halving

This is a timeline of historical events behind Bitcoin halving:

The first Bitcoin Halving occurred on November 28, 2012. The Bitcoin block height reached 210,000, and the miner’s reward dropped from 50 to 25.

After approximately four years, on July 9, 2016, the block height added another 210,000 to 420,000 blocks. The block reward was halved to 12.5.

By May 11, 2020, another milestone of 210,000 blocks was mined, increasing the block height to 630,000. The reward dropped to 6.25.

It is projected that by March 2024, the block height will increase to 840,000, and the reward will be halved to 3.125.

In 2008, when Satoshi Nakamoto launched Bitcoin, the reward for successfully mining a block was 50BTC. Due to halving that has seen the creation of over 630,000 blocks, the reward has dropped to 6.25 BTC.

Experts project that the reward will continue to follow this halving pattern until around 2140. By then, the miners would have reached the maximum limit of 21million mined blocks.

The Theory Behind Halving

When halving takes place on the Bitcoin blockchain, the following chain reaction will metamorphose;

The reward is halved= inflation halved= reduced available supply= increased demand= price increase= miners’ incentive remains regardless of smaller rewards, as the value of Bitcoin is increased in the process.

Sometimes, the halving does not lead to an increase in demand and supply. In the absence of an increase in demand and supply, miners will not get the desired rewards.

The reward will be smaller than what is expected, and the value of Bitcoin will not increase.

To prevent this market dive, Bitcoin has a mechanism that will automatically lessen the mining difficulty for miners. So while miners do not get the desired rewards for the task done, the task will be easier than it used to be.

The Possible Implications Of Bitcoin Halving

The idea behind Bitcoin halving is to reduce the amount of coins in circulation and reduce the rate of new coins launched into the crypto market.

The implication of this intentional reduction is numerous. They include;

Firstly, as an investor, Bitcoin halving implies that other assets that do not have a supply limit will continue to have high demand and a price increase. For instance, gold has a finite supply.

Secondly, Bitcoin halving is characterized by price surges. During the period of halving, the Bitcoin price always increases drastically.

The first halving in November 2022 saw the price of Bitcoin move from $12 to $1,217. The second and third halving witnessed the same price surge.

Looking at the instances above, we can say that Bitcoin halving has positive and negative implications on the crypto market.

Merits and Demerits Of Bitcoin Halving

As an investor or holder of Bitcoin, you will likely gain more (double) your investment after halving. Once halving occurs, the price and value of the Bitcoin token increase.

If you bought 1BTC for $1000 before halving, the price would soar after splitting. So the same unit of BTC that you bought for $1000 might eventually be worth about $3000 after halving.

On the other hand, the demerit is that the more halving takes place, the nearer we are moving to the final units of Bitcoin. As of the last halving in 2021, over 18 million tokens of BTC have been mined, in a few years, miners will mine the final tokens, and there will be no more blocks to be created or mined.

At this point, the market value of BTC will increase, and the acquisition will be for the highest bidders. Also, the more halving occurs, the less the reward for miners.

Conclusion

Several processes and activities are going on behind the scenes in blockchain technology. One of them is Bitcoin Halving.

Unlike other processes such as Bitcoin mining that are frequent, the Bitcoin Halving seldom occurs, and it is estimated to occur after every four years.

With the split in the reward, the miners still tend to gain after successfully mining new blocks and verifying the validity of transactions. The value of 50BTC in 2008 is not up to 6.25 BTC in 2021.

Until the maximum Bitcoin of 21 million is reached, halving will continue to occur, and the reward price will continue to be split.