What is Bitcoin Halving?

A significant event taking place in the crypto space that few retail investors are aware of is bitcoin halving.

What is bitcoin halving?

Bitcoin halving is an event that occurs every 210,000 blocks (approximately every four years) in the bitcoin blockchain, during which the number of new bitcoins created and added to circulation is halved. This means that the reward for mining a block is reduced by 50%. The idea behind the halving is to control the rate at which new bitcoins are created and to ultimately limit the total number of bitcoins in circulation to 21 million. 

How the Bitcoin Halving Works

To get your head around what halving is, we should recall once again how bitcoin mining works.

When new transactions are made using bitcoin, they are added to the blockchain. This distributed public ledger keeps track of all bitcoin transactions.

Blockchain transactions are validated and added by miners, who use specialised software and gear to solve complicated mathematical problems. Mined bitcoins are given to miners as compensation for their work.

The Bitcoin reward is cut in half every 210,000 blocks, or around once every four years. The block reward will be cut in half for the duration of the halving.

This means miners will only be rewarded 6.25 bitcoins for every block instead of 12.5 bitcoins. 

As a result, the rate at which new Bitcoins are being added to circulation has been practically halved due to this fall in the block reward.

The halving drastically affects the rate at which new bitcoins are added to circulation.

As the market shifts to favour sellers due to the reduced supply and stable demand, the bitcoin price may rise.

The halving may also affect the mining community, as the decreased block reward may make mining less profitable for some miners.

Because of this, some miners may leave the industry, which would restrict the amount of Bitcoins being created.

Implications of the Bitcoin Halving 

Since the halving would slow the creation of new bitcoins, the price of bitcoin may rise if supply is cut and demand remains constant.

The price may go north much more because of the increased perception of scarcity caused by the halving.

 It’s important to remember that the market’s reaction to the halving might be erratic; earlier halvings have had varying effects on the price of bitcoin, some favourable and some negative.

It’s crucial to remember that the halving isn’t the only thing affecting Bitcoin’s price; things like global market circumstances, government restrictions, and general market sentiment can also play a role.

If the halving goes ahead, there may be repercussions for the mining industry and the mining’s bottom line. 

With fewer bitcoin available as a reward for each successfully mined block, mining may become less lucrative for some miners.

If the value of Bitcoin rises, the value of the lowered block reward may also increase the profitability of mining.

Furthermore, since smaller and more efficient miners may be able to compete with larger and less efficient miners, the halving may also lead to a more decentralised mining economy.

This event may have far-reaching consequences for Bitcoin’s broader ecosystem. 

The mining community will shift from receiving fresh bitcoins as a reward to receiving transaction fees as the block reward continues to drop.

When a larger number of miners are responsible for maintaining the network’s security, the mining ecosystem as a whole can become more resilient and decentralised. 

The halving process has the potential to make Bitcoin both rare and more precious, hence increasing its appeal as a store of value.

The halving is integral to Bitcoin’s architecture, and its long-term ramifications will have profound implications for the currency’s future.

Previous Bitcoin Halving events 

In 2012 and 2016, the Bitcoin supply was cut in half. On November 28 November 28, 2012, the block reward was halved from 50 to 25 bitcoins. 

As of July 9 July 9, 2016, the block reward was again cut in half, from 25 Bitcoins to 12.5 Bitcoins. This halving of the rate at which new bitcoins are added to circulation marked a significant turning point in Bitcoin’s development.

Looking back at the years leading up to and following the 2012 and 2016 halvings, we can observe that market and mining conditions were very different in each case. For example, one bitcoin’s price was constant at $10 before the halving in 2012.

 The price of bitcoin, however, proceeded to rise sharply after the halving, eventually hitting a peak of over $1,100 in 2013. Before the halving in 2016, Bitcoin’s price was consistent at around $450. 

However, the halving coincided with a sharp increase in bitcoin price, which peaked at almost $20,000 in December of 2017.

This comparison demonstrates the profound effect the halving events had on the value of Bitcoin. However, due to reduced supply and stable demand, the price of bitcoin may rise due to halving. 

Final thoughts

It’s estimated Bitcoins will stop being created after the last halving will occur in 2140 when the supply of BTC reaches 21 million coins.

As an investor, it is paramount to keep an eye on such events as halving, as it is expected that there will be high volatility in the BTC price around that time.

If you get to this point, I will encourage you to check our helpful guides and tools for your crypto journey.