Bitcoin (BTC) Halving is the process where the rate and rewards for mining bitcoin are cut in half. The event happens every four years. Bitcoin founder Satoshi Nakamoto introduced the halving event to regulate the production of Bitcoin and keep the digital currency deflationary.
By limiting the rewards of miners, the halving event also effectively controls the frequency at which new BTCs are created, and ultimately Bitcoin’s inflation rate, making the asset more valuable.
To fully understand this concept, it is important first to have some background knowledge of mining.
Crypto Mining is a process involving network validators who use powerful computers to solve complex mathematical problems on the network to verify transactions. A transaction is added as a new block to the blockchain after verification.
Bitcoin makes use of a Proof-of-Work (PoW) consensus mechanism to secure the network and prevent the system from being exploited.
The PoW mining protocol operates on the principle that the first person to solve a problem gets rewarded. However, this is no mean feat as these problems are always highly complex and often require specialized mining rigs to solve.
Nakamoto went with the PoW process largely to address the issue surrounding double-spending. The harder it is to solve a puzzle, the more difficult it is to suffer a 51% network attack.
A 51% attack occurs when only one entity controls more than 50% of the entire hash power of the network, making them powerful enough to block new transactions from taking place or being verified. This generally leads to a “double-spend.” A double-spend attack allows a malicious actor to fraudulently initiate multiple transactions using the same unit of a cryptocurrency.
Blocks on a blockchain contain the record of all the transactions that have taken place on that network. Thus, as the transactions on the network increase, more blocks are added to the blockchain.
A block on the Bitcoin network contains only 618.136 KiloBytes (KB) of the transaction history. As of the end of April 2024, there were over 491.50 Gigabytes (GB) worth of transactions history on the Bitcoin network. This figure rose from 4.52GB in December 2012.
Miners are often in a race against time because only the first validator to solve the mathematical puzzle and add the block of transactions to the network gets rewarded.
The miner gets rewarded with freshly minted Bitcoins as compensation for their effort used in validating a transaction.
Initially, the reward for adding a new block to the network was 50 BTC.
The first Bitcoin halving event reduced the miner’s compensation to 25 BTC. Four years later, it was reduced to 12.5 Bitcoin. As it stands after the halving in April 2024, miners are rewarded with 3.125 Bitcoins whenever they add a block of transaction to the Bitcoin blockchain.
For some commentators, the halving event provides miners with lower incentives for undertaking intensive and energy-consuming tasks every four years. However, there is another angle to view the argument from.
For example, back in 2009, 50 BTC was not worth much compared to what 1 BTC is worth today. Thus, the halving of miners’ rewards is justified, and in fact, a considerable encouragement for them.
For example, 6.25 BTC is worth over $340,000 when Bitcoin is trading around the $55,000 level. So we can confidently conclude that mining is still more lucrative and rewarding now than it ever was.
Bitcoin Halving Countdown
When Is The Next Bitcoin Halving?
Bitcoin halving (aka Halvening) takes place once 210,000 blocks have been added (this is estimated to happen every four years). The last Bitcoin halving took place on 20th April, 2024.
Although there is no known official date yet, the next Bitcoin halving will likely occur sometime in 2028. The estimated date at the date of publish is April 2028.
Investors are already positioning themselves to benefit from this event in the future, due to the associated surge in the price of Bitcoin.
Historically, after every halving event, Bitcoin experiences a bull run. The first halving event occurred in November 2012 and Bitcoin rallied from $12 to $1,150 the following year. The second one in July 2016 saw the price of BTC shoot from $650 to almost $20,000 in 2017, an increase of 3,000%. Since the halving that occurred in May 2020, the foremost digital currency has surged to a then-all-time high of $69,044.77 in the last quarter of 2021.
These events, coupled with the amount of Bitcoin currently in circulation, have seen several institutional investors consider BTC as a hedge against recurring inflation. This becomes even more significant as a Bitcoin halving event draws close, as the price of BTC will likely surge due to supply crunch.
Why is Halving Significant?
Bitcoin is a decentralized currency, meaning no central authority controls how and when new coins are circulated. This task of circulation is assumed by Bitcoin halving, which limits the frequency with which the decentralized asset is released.
Even more importantly, the halving process ensures that the digital asset remains deflationary and valuable due to the limited number of block rewards miners receive for confirming transactions.
Aside from that, halving is critical in lowering the coin’s inflation rate, ensuring that it retains its feature of being a store of value in the long run.
Bitcoin Halving and Inflation
As the number of Bitcoin in circulation approaches its maximum supply, Bitcoin Halving naturally reduces the rate at which new coins are being added to the network.
Bitcoin mining difficulty is also set to play a crucial role in the success of the blockchain currency. Difficulty generally calculates the average block time needed to add new transactions to the network. A high difficulty parameter ensures that the network is secure against malicious attacks.
Bitcoin has the highest level of difficulty with the parameter set at 22.674 trillion. This makes Bitcoin highly secure and the parameter increases after each halving event. This way, newly minted Bitcoins would be introduced at a slower pace which warrants the 2140 target date that Bitcoin mining is expected to end.
This is a key attribute that explains why Bitcoin is described as a deflationary asset, especially as inflation fears continue to escalate.
According to a November 2021 US Consumer Price Index (CPI) report by the Labor Department, the inflation figure rose to 6.2% for all items, the highest since 1990. This put Bitcoin in a prime position to become a store of value due to its scarce nature. In March 2024, this had reduced to 3.5% (before seasonal adjustment), but this comes after a separate period of high-inflation at the tail-end of the pandemic.
When the total supply of Bitcoin has been fully mined, there would be a change to the miners’ reward. Instead of being paid BTC as compensation, they will only be paid a transaction fee for every new block added to the blockchain.
Bitcoin Halving Dates History
Historically, there has been an immediate surge in the price of BTC immediately after the Halving. The positive correlation between halving and BTC price spike has been continuous since the first halving occurred in November 2012. The price of BTC took a sharp upward movement from just $12 in 2012 to a massive $1,217 as of November 28, 2013, an astonishing gain of about 9,500% in just a year.
The next Bitcoin halving took place on July 9, 2016. At the time, BTC was worth $647, and by the end of the following year, it had attained an impressive height of $19,800. (Dec. 17, 2017, up about 3,000% in value.) After hitting this height, the price of BTC dipped to about $3,276 on Dec. 17, 2018.
On May 11, 2020, there was another Bitcoin halving. Before this, BTC stood at $8,787, but by April 14, 2021, BTC had touched new heights, soaring to $64,507, up 634% from the pre-halving value of the popular cryptocurrency.
The April 2024 halving saw BTC close at $64,961.10, and for the rest of April the cryptocurrency held around a similar price point with daily volatility but no rapid upward or downward trend as seen previously after Bitcoin halving events.
Bitcoin halving will likely happen in 2028, as mentioned earlier, and based on Bitcoin historical data, the controversial cryptocurrency is expected to hit new record highs again.
Halving Implications
The most significant implication of the Bitcoin halving event is that there is a push that creates an artificial pump. This is largely due to the dearth of BTC in open circulation in contrast to the available demand. In fact, the halving event has created several bull runs in the market.
The crypto asset’s value rose a hundredfold from under $12 to nearly $1,000 post-2012 halving. The second halving event in 2016 saw Bitcoin’s price pump from $1,000 to over $19,000 in December 2017. The block reward was cut from 25 to 12.5 BTC in 2016.
The next event followed a similar pattern as the previous one. Before the halving event, Bitcoin was trading below $10,000. The digital asset exploded to an all-time high (ATH) of $69,000 after block rewards were reduced to 6.25 BTC in 2020.
The next Bitcoin halving event is scheduled for April 2028, and enthusiasts believe the cryptocurrency will continue to rise.
How Does Bitcoin Halving Affect Bitcoin’s Network?
The halving of Bitcoin has caused quite a stir in the blockchain industry. This event, however, has an impact on two key groups of players.
The investors come first. Bitcoin halving events streamline or reduce the amount of BTC in circulation, resulting in a supply crunch. With so little available and a growing market demand, economic forces take over. Trading activity typically increases during this period, which always positively impacts the digital asset’s price shortly after the event.
For example, BTC traded below $20k after the last event but soared to over $69,000 ten months later.
Miners are the Bitcoin network’s second-largest stakeholder. This group of decentralized computer networks are in charge of validating network transactions. While a halving event reduces the number of block rewards, the value of the coins increases significantly afterwards.
However, a halving event is not without complications for miners, as the difficulty level rises, making it even more challenging for small mining companies to turn a profit. This usually results in these small outfits leaving the network, making it more vulnerable to a 51% malicious attack.
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