Bitcoin Halving

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21 Aug, 2024

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Bitcoin halving refers to a technical event where the reward for Bitcoin mining decreases by half. It takes place once every four years approximately. The main objective of halving is to reduce the pace of Bitcoin supply in the economy to retain the cryptocurrency's value.

The last Bitcoin halving happened on May 11, 2020. The reward for mining the cryptocurrency awarded to network participants was 6.25 Bitcoins (BTC). The next halving is likely to occur around April – May 2024, when the reward will fall to 50% of the previous value, i.e., 3.25 BTC.

Bitcoin Halving Definition

Bitcoin halving is a technical event during which the reward for mining Bitcoins is reduced by 50%. This event occurs approximately every four years, with each reduction halving the reward.
The cycle commenced in 2012 with the inaugural halving, at which point the reward stood at 50 Bitcoins per block.
Halving operates as an automated mechanism designed to regulate the issuance of new Bitcoins into the economy, thereby contributing to the asset's value preservation.
A Bitcoin halving chart provides a visual representation of both historical and projected future halving events. It includes information about rewards and block heights associated with these events.

How Does Bitcoin Halving Work?

Bitcoin halving is an event that investors, bitcoin miners, and financial analysts anticipate. The idea is complex and requires understanding basic concepts related to Bitcoins and mining.

Bitcoin, a cryptocurrency and investment, allows anonymous transactions via blockchain. Mining validates transactions and increases supply. It is automated in the protocol and halves rewards every four years to cap supply at 21 million by 2140, sustaining the cryptocurrency's scarcity and value.

Here is the Bitcoin halving chart, with the details of all the halving dates and rewards.

Halving	Date	Rewards	Block Height
1.	November 27, 2012	50 BTC	210,000
2.	September 07, 2016	25 BTC	420,000
3.	May 11, 2020	12.5 BTC	630,000
4.	April/ May 2024	6.25 BTC	840,000
5.	2028	3.125 BTC	1,050,000
6.	2032	1.5625 BTC	1,260,000
7.	2036	0.78125 BTC	1,470,000
8.	2040	0.390625 BTC	1,680,000

Block height refers to the number of valid blocks mined since a particular blockchain network was created. The block height keeps increasing by 210,000 blocks during every halving. Blocks consist of a set of transactions that have been validated at a specific time. The table shows the amount miners earn per block mined after every halving.

As of April 26, 2023, the total number of circulating Bitcoins is approximately 19.355 million, leaving roughly 1.645 million Bitcoins yet to be mined. Beyond 2140, when 21 million Bitcoins are in circulation, miners will continue to receive compensation through transaction fees and processing charges. Although no new Bitcoins will be generated, miners would still play a crucial role in validating transactions within the network.

Mining is a complex endeavor demanding significant effort, investment, and energy. As rewards decrease with each halving, some miners may lose motivation. However, Bitcoin's increasing value can still make mining financially appealing and attractive to miners.

Examples

Here are a few examples to study the concept of halving.

Example #1

Consider Zack, a miner who participated in the previous Bitcoin halving when block rewards were 6.25 BTC. With the upcoming halving set to reduce rewards to 3.125 BTC, Zack is understandably cautious about committing his resources and time. However, he observes that the price of Bitcoin in 2020 was approximately $8,500 and anticipates it might reach $50,000 by the next halving. Despite the reduced rewards, this potential surge in Bitcoin's value makes mining still an attractive proposition for Zack.

Example #2

Bloomberg Intelligence forecasts that Bitcoin could reach a price of $50,000 by April 2024, aligning with the anticipated Bitcoin halving event. Historically, there has been a strong positive correlation between these halving cycles and subsequent price surges. Notably, Bitcoin has witnessed a 67% increase in value since December 31, 2022, following a relatively uneventful year.

The upcoming halving event is expected to boost the cryptocurrency's price by 81% potentially. Traditionally, Bitcoin prices have experienced declines in the 12-18 months leading up to halving events. Financial experts suggest that this period may present an opportune time to consider acquiring and holding the asset with the expectation of greater returns.

It is important to remember, however, that cryptocurrency investments are inherently speculative and subject to market fluctuations.

Importance

The leading cryptocurrency has experienced significant appreciation over the years, with the current value of 1 BTC standing at $28,900. This high value is partly attributed to Bitcoin's limited supply.

Bitcoin's maximum supply is capped at 21 million, contributing to its perceived value to maintain the cryptocurrency's value proposition, regular halving events are conducted. It's crucial to note that these halving events do not increase the supply of existing Bitcoins; instead, they halve the rate at which new Bitcoins are created. This mechanism helps control the supply dynamics and preserve the cryptocurrency's worth over time.

While it is true that, in traditional economics, an increase in supply can impact prices, Bitcoin's price is influenced by many factors, including market demand, adoption, macroeconomic conditions, and investor sentiment. The relationship between supply and price in cryptocurrencies is more nuanced than a simple cause-and-effect scenario.

Frequently Asked Questions (FAQs)

1. Does Bitcoin halving affect altcoins?

While there is no standard relation between Bitcoin halving and other cryptocurrencies like Ethereum, Tether, etc., it is logical that an increase in the number of the world's leading cryptocurrencies should affect others in terms of sales, prices, demand, etc.

2. Is Bitcoin halving bullish or bearish?

Considering the past halving cycles and their effect on prices, it can be observed that halving is bullish on Bitcoin's prices. After every halving event, the price of Bitcoin relative to the USD has increased due to the increased demand for newly supplied coins.

3. Can Bitcoin's total supply exceed 21 million after halving?

No, Bitcoin's total supply cannot exceed 21 million coins, even after halving events. Bitcoin halving is designed to gradually reduce the rate at which new Bitcoins are created, ultimately capping the total supply at 21 million. This scarcity is fundamental to Bitcoin's design and contributes to its value proposition.