Did you know that the supply of Bitcoin is limited? Yep, there are only ever going to be 21 million Bitcoin. Unlike fiat money, its supply cannot be changed by issuing more coins. Bitcoin’s supply is fixed and immutable.
Bitcoin founder Satoshi Nakamoto kept the number of coins fixed as an anti-inflationary measure which also helps to maintain the value of the cryptocurrency.
Further, Bitcoin’s mining algorithm has something called a halving policy coded into it. Halving counteracts inflation by reducing the rate at which new bitcoin is released into circulation. This scarcity ensures that Bitcoin prices remain high as the supply of the coin is limited.
Halving events play an important part in maintaining the scarcity of Bitcoin. By now, you must be having several questions in your mind. What does it mean that Bitcoin is halving? What happens when Bitcoin is halved? When is the next Bitcoin halving? Read on to find out more about Bitcoin halving, its history, halving countdown and an estimate for the last Bitcoin halving.
Understanding Bitcoin Mining
Before talking about halving, let us first understand Bitcoin mining. Bitcoin has been developed using the blockchain technology. It consists of a network of computers called nodes that approve or reject a transaction in the network. The nodes have to create a consensus to add a new block to the chain. This is the process of validating transactions which helps in creating a chain of blocks that contain information.
There are certain mechanisms that blockchains use for validating transactions. Bitcoin uses the Proof-of-Work(PoW) mechanism for creating consensus and validating transactions.
In this system, miners compete with each other to find the answer to a complex puzzle. The node that first solves the puzzle gets to validate the transaction and is then rewarded with bitcoin in return.
This reward acts as an incentive for miners to participate in the mining process and compensates them for the time and energy spent in validating a transaction.
What is Bitcoin Halving?
Bitcoin Halving is one of the most significant events for Bitcoin miners. Simply put, it is when the reward for Bitcoin mining is reduced. Specifically, the reward is cut in half which is why it is known as Bitcoin halving. A halving event takes place after 210,000 blocks have been mined which roughly happens every four years.
Since the supply of Bitcoin is fixed at 21 million coins, a halving event reduces the number of new coins that are released into circulation. This acts as an anti-inflationary measure as the rate at which new Bitcoin is released is practically cut in half.
Even though the reward is reduced after a Bitcoin halving, miners may still be encouraged to continue mining if the price of Bitcoin increases after the halving event.
Bitcoin Halving History
Bitcoin was launched in 2009. At that time, the mining reward was 50 BTC per block. However, Bitcoin barely had any value at that time. Its value was, for example, estimated to be about 14 cents in April 2010 and it achieved dollar parity almost one year later in February 2011.
The first Bitcoin halving took place in November 2012, four years after the cryptocurrency was first launched. It reduced the reward for BTC mining to 25 BTC per block. At the time of the halving, Bitcoin’s price was hovering around $12. After the halving, its price started increasing and reached nearly $1,000 in 2013.
The second Bitcoin halving took place in July 2016 and further reduced the mining reward to 12.5 BTC per block. Interestingly, BTC prices plummeted in the immediate aftermath of the halving but started rising later and one BTC was equal to $2,550 by July 2017. The prices even reached an all-time high of $19,700 in December 2017.
The next Bitcoin halving was in May 2020 and the mining rewards came down to 6.25 BTC per block. Although Bitcoin prices were roughly $8,700 at the time, they again started rising in the following months. After just three months, it had gained almost $3,000 as BTC prices neared $11,000.
Keeping to this schedule, another Bitcoin halving would be in 2024 and this will continue till there are no more Bitcoin left to be mined. This is expected to be in the year 2140 when the last Bitcoin will be mined.
What Happens to My Bitcoin During a Halving?
Bitcoin halvings have significant implications for Bitcoin prices and Bitcoin miners. Historically, BTC prices have almost always gone up after a halving event. This could, however, also be attributed to the increased press coverage and increased awareness about and fascination with cryptocurrencies.
Bitcoin halving is, essentially, a deflationary measure as it ensures that fewer and fewer coins enter into circulation with every subsequent halving. This is supported by the fact that Bitcoin’s inflation rate, which was 50% in 2011, came down to 12% in 2012 after the first halving. It further came down to a 1.77% yearly inflation rate in 2023.
This reduced supply of Bitcoin also ensures that its price does not fall too low given that its demand remains high. This will give miners an incentive to continue mining Bitcoin even if the reward for validating transactions is reduced.
For miners, Bitcoin prices have to rise significantly to make up for the reduced mining rewards. Since blockchains with PoW consensus mechanisms are particularly energy-intensive, miners would need to be more efficient than ever to lower their overhead costs.
In such a situation, certain miners may exit as they would no longer be able to competitively mine Bitcoin. In the long run, however, this will ensure that only the most efficient players remain in the race.
Bitcoin Halving Frequently Asked Questions(FAQs)
Does Bitcoin Halving Increase Price?
Historically, Bitcoin prices have always increased after a halving event. However, correlation does not always equal causation and it is difficult to say whether the price increase can be completely attributed to the Bitcoin halving event or not.
Bitcoin halving does not directly affect the BTC you already own. Therefore, nothing much may change for you if you only own some coins and are not into crypto mining. Of course, any significant rise or fall in the prices of Bitcoin will affect the value of your coins.
When is the Last Bitcoin Halving?
A Bitcoin halving event takes place approximately every four years. The first halving took place in 2012 and the last Bitcoin halving is expected to be in 2140. At that point, there would be 21 million BTC in circulation and the block reward would be less than one Satoshi.
How Does Bitcoin Halving Affect Miners?
In the short run, Bitcoin halving reduces the mining rewards for miners. In the long term, however, it helps miners consolidate their position only the most efficient players would be able to competitively mine bitcoin. Further, small players may drop out of the race resulting in a consolidation of the miners’ ranks.
The Bottom Line
Bitcoin halving is an important event in the crypto industry as a whole. Every halving cuts in half the rate at which new coins are released. From 50 BTC per block in 2009, the mining reward for each block has come down to 6.25 BTC in 2023. As per predictions, this will continue till 2140 when Bitcoin’s 21 million limit will be reached.
Nearly all the halving events have been followed by a bullish run for Bitcoin prices. While halving reduces the rewards for miners, the rising prices ensure that they stay on the network and contribute their computing power for validating transactions.