What Is Bitcoin Halving?

by Nisha Ramesh  |  January 7, 2021

Once every four years or so, the Bitcoin world witnesses a significant event that could impact every aspect of Bitcoin, i.e. Bitcoin Halving.

When you think of the term Halving, what comes to mind?

A thriller murder mystery? Or an imaginary Bitcoin breaking into two?

Honestly, when I first came across this term, I thought that a single Bitcoin splits into two halves (like a biological cell) to meet the demand for it. 

Well, those are just crazy imaginations. 

In reality, Bitcoin Halving plays a significant role in the economics of Bitcoin. So, if you have found yourself here looking for answers to questions such as:

  • What is Bitcoin Halving?
  • When does it happen?
  • How it impacts you as an investor?

I must say that you have landed in the right place. In this article, I will try to cover all bases on the topic of Bitcoin Halving.

But for that, you first need to understand how Bitcoin comes into circulation. 

Understanding Bitcoin Mining Rewards

Many bitcoin enthusiasts plug in their networks each day and start mining Bitcoins. Well, let us not get lost in details of what mining is. 

But here is a brief:

Bitcoin Mining is the process in which miners process various blocks of transactions in exchange for a reward.

Now, what is this reward?

A reward of a fixed amount of bitcoins is released to a successful miner every 10 minutes.

These new coins serve as an incentive for successfully processing a transaction block. But the reward has to be just right; a big prize could cause oversupply and lessen the currency value.

This is where Bitcoin Halving comes in. 

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What Does Bitcoin Halving Mean?

The idea behind which the Bitcoin was created is to make it a deflationary currency.

So, Satoshi Nakamoto designed it in such a way that as time goes by, mining would become more complicated, and the rewards will reduce to control the supply. 

That system was Bitcoin Halving. 

Simply:

Bitcoin Halving refers to a 50% curb in the block rewards after a fixed number of blocks are mined successfully.

This phenomenon occurs every four years, reducing the block reward by half of what was being paid. Thus, reducing the inflation rate and circulation of Bitcoin in half. 

For example: 

After the recent Halving, the block reward for Bitcoins is currently 6.25 BTC for every transaction. In some four years (2024) and after 2,10,000 blocks are mined in the Bitcoin Blockchain the block reward will be cut down to 3.125 BTC. 

Halving Events So Far

There is a total of only 21 million bitcoins that can ever be produced, and the last Halving is expected to be taking place in the year 2140. 

The latest Bitcoin Halving event occurred recently on 11th May 2020. Before this Halving, the block reward was 12.5 BTC which is now reduced to 6.25 BTC for every block.

This table represents the historical data of Bitcoin Halving events.

Halving Events Date Blocks Completed Block reward % mined
BTC launch 3 January 2009 0 50 50
Halving 1 28 November 2012 210,000 25 75
Halving 2 9 July 2016 420,000 12.5 87.5
Halving 3 11 May 2020 630,000 6.25 93.75
Halving 4 Expected 2024 840,000 3.125 96.875
Halving 5 Expected 2028 1,050,000 1.5625 98.4375
Halving 6 Expected 2032 1,260,000 0.78125 99.21875

 

The world has witnessed only three halving events so far and but almost 93.75% of the Bitcoins are already mined. But the remaining 6.25% will be tough to mine. 

You may have noticed that 99% of Bitcoins would have been mined by 2032, whereas it will take more than 100 years from then to mine the rest of the 1%.

Effect Of Bitcoin Halving On The Network

The Bitcoin Halving controls the reward rate and inflation of the currency. This, in turn, affects its price.

Here’s how: 

The life of the reward system is extended. If we were still getting 50 bitcoins for every block of transactions, we would have exhausted all the 21 million Bitcoins by now.

It would have required just 8 years to mine all the Bitcoins since it took only four years to mine for the first 50%. Halving has reduced the rate at which rewards are earned, thus keeping the reward system alive for long. 

Secondly, after every Bitcoin Halving event, you may notice a trend of the price surge in the markets.

For example, Bitcoin was priced at $12 before the first halving event. After the Halving took place, the price went to $1500 in just one year.

The second Halving that took place in July 2016 led to Bitcoin’s bull rally of up to $20,000 after which it saw a steep decline.

After the Bitcoin Halving of 2020, the Bitcoin market is currently witnessing a bull run. The limited supply of Bitcoins causes its price to increase due to high demand and higher scarcity. 

Also, the cost of mining each Bitcoin increases after every Bitcoin Halving. The network’s difficulty increases, and there is a drop in the reward rate. And hence, the actual cost of mining tends to increase, resulting in a higher trading price.

What Happens When Mining Stops?

We know what you are thinking – what happens when the reward becomes zero?

Will the miners stop mining and bring the Bitcoin system to a grinding halt?

Well, not really. 

There are two approaches to address this question.

Firstly, the last Bitcoin will be mined in the year 2140. By this time, the economic conditions of Bitcoin or cryptocurrency as a whole will have evolved. Thus, eliminating the need for block rewards.

Secondly, miners get a secondary income apart from block rewards, i.e., transaction fee. So, by the time the dawn of the year 2140 breaks in, transaction fees would be profitable enough for miners to continue mining indefinitely.

However, We may never know, as most of us would not be alive till then. 

What we do know is:

In another decade, Bitcoin will see two more halvings, and by then most of the monetization of this new asset would have been achieved.

So that’s all Folks!

See you at the next Bitcoin Halving event 🙂

KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.


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