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Bitcoin Halving: How It Works & Why It’s Important

By Kapil Rajyaguru

Exactly a year from now, Bitcoin, the world’s largest virtual currency, is predicted to go through its next so called “halving,” an important technical event that might serve as a catalyst for a prolonged rise in Bitcoin’s value. So, what exactly is this halving?

Bitcoin Halving 

A Bitcoin halving is when the payout for mining a new block is halved, and this happens after every 210,000 blocks, approximately four years. The first of which happened in 2012, and the next will occur in 2024.

In 2009, the system rewarded successful miners with 50 Bitcoin every 10 minutes. Three halving later, 6.25 Bitcoins are being dispensed every 10 minutes.

The process will end once the number of Bitcoins in circulation reaches 21 million. A popular estimate is that it will occur sometime near the year 2140.

We will discuss what happens in a Bitcoin halving, why it is a big deal for those involved with Bitcoin mining, and its impacts on investors and the coin in general.

Why does Bitcoin halving matter? 

Bitcoin halving is generally accompanied by a lot of tumult for the virtual currency. Because of the halving cycle, the supply of available Bitcoin decreases, raising the value of Bitcoins yet to be mined. And with such changes comes the opportunity to profit.

On November 28, 2012, when the price of BTC was around $12, the first halving took place; one year later, Bitcoin had risen to nearly $1,000. The second halving occurred on July 9, 2016, and Bitcoin’s price plummeted to $670 at the time but rose to $2,550 by July 2017. Bitcoin reached an all-time high of about $19,700 in December of that year. Bitcoin’s price was $8,787 at the time of the most recent halving, in May 2020, and it exploded in the months following.

Of course, there were other elements to consider when analyzing Bitcoin’s post-halving booms:

• More press coverage of cryptocurrencies and Bitcoin.
• A fascination with the digital asset’s anonymity.
• A gradual increase in the number of real-world use cases for the currency.

Why are the halvings occurring less than every 4 years?

The Bitcoin mining algorithm is set with a target of finding new blocks once every 10 minutes. Some blocks take more than 10 minutes; some take less. This can decrease or increase the amount of time it takes to reach the next halving goal. For example, if blocks consecutively average 9.66 minutes to mine, it would take about 1,409 days to mine the 210,000 blocks required (four years is 1461 days, including one day for a leap year).

What happens when there are no Bitcoins left? 

It is often thought that in 2140, the last Bitcoin will be mined. However, if the reward is halved every 210,000 blocks, there will always be a mining reward—assuming the blockchain still exists at that time. The reward will just get smaller and smaller every time there is a halving if the practice continues.

What are the effects of Bitcoin halving? 

The halving obviously results in a reduction of the reward for the creation of new blocks. The next halving will lower it down to 3.125 Bitcoin.

Bitcoin halving & economics

Halving reduces the new coin creation rate lowering the supply, and halvings usually bring a lot of press and new buyers, which increases supply. This has had implications for investment like other assets with finite or low supplies, such as precious metals, which have higher demand and prices are pushed higher. 

If I own Bitcoin, will anything change for me after halving?

No, except in as much as any subsequent price change would leave you richer or poorer. But it will be impossible to know how much of the change is due directly to halving.

What will happen to the income of miners when all Bitcoins are mined? 

At a predetermined point, the network will move away from block rewards entirely and fund mining through transaction fees alone. All in all, the long-term future of the Bitcoin network depends on the adoption of technology, regulatory developments, and numerous other factors. Any far-reaching projections on value and use-cases are more speculative than anything else.

Is Bitcoin halving good or bad? 

Bitcoin halving has its upsides. It has been said that halving is one of the reasons Bitcoin still has value. 

When Bitcoin was created, it was the advent of a form of currency that has been created that is profoundly deflationary and has a fixed supply limit (only 21 million Bitcoins will ever exist). 

Some say that Bitcoin is the “hardest” money ever known, meaning that Bitcoin is hard to create and has a limited supply. In this sense, Bitcoin is sometimes compared to gold or other precious metals. 

Gold also has to be mined and has a scarce supply. This is why Bitcoin is sometimes referred to as “digital gold,” but Bitcoin is not correlated with the price or supply of gold, nor is it considered a precious metal. There is, however, a crypto on the market called “Bitcoin Gold,” which, again, is not the same as actual, out-of-the-ground gold.

Conclusion 

Bitcoin halving refers to an event when the number of Bitcoins miners receive in exchange for processing transactions is cut in half, occurring once every four years. The most recent halving was in 2020, and the next one will happen in 2024. 

Halving is a fundamental part of Bitcoin’s network, and as a feature of that network, is what makes some people believe that Bitcoin is unique as a store of value. But the halving can and does influence its price, too, which is something investors should keep in mind.

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