What is Bitcoin Halving?
Bitcoin (BTC) halvings have become very important events in the crypto community. Although halvings only affect the issuance of Bitcoin, they tend to have a significant impact on the entire crypto market. Some investors even believe that the rise and fall of the crypto market coincides with the four-year Bitcoin halving cycles.
What is Bitcoin halving?
Bitcoin halving is a recurring event in which the daily issuance of Bitcoin is cut in half. Specifically, the Bitcoin reward that Bitcoin miners receive for each block is reduced by 50%. Since this is the only way new Bitcoin can be created, this reduces the creation of new supply per time period by half.
When Bitcoin launched in 2009, anyone who lent computing power to the network could receive 50 BTC per block as a mining reward for verifying and adding new blocks. This 50 BTC reward is known as a block reward and serves as a strong incentive to increase hashing power on the Bitcoin network.
However, due to Bitcoin halving, this mining reward is much less than 50 BTC. With each consecutive halving, these block rewards are halved. Since 2009, Bitcoin rewards have dropped to 25 BTC, 12.5 BTC and 6.25 BTC per block.
Satoshi Nakamoto, the founder of Bitcoin, designed Bitcoin's code to be truncate after every 210,000 blocks. Since each block on Bitcoin's blockchain takes approximately 10 minutes to complete, halvings typically occur every four years.
How does Bitcoin halving work?
Bitcoin's proof-of-work (PoW) algorithm helps make these halvings possible. The PoW consensus mechanism requires blockchain participants to use computing power to solve complex algorithm puzzles. Every computer on the Bitcoin blockchain has a chance to verify new transactions, but computers that provide more “work” have a higher chance of success.
These Bitcoin miners trade their time and electricity for the chance to receive Bitcoin rewards. Each block produced by a computer receives a bonus BTC reward consisting of network fees and newly minted coins from users who submit transactions. Nakamoto used these Bitcoin rewards as a “carrot” to encourage more people to add hashing power to the Bitcoin network. Halving events are built into Bitcoin's code. Miners and investors can expect these Bitcoin rewards to decrease by half roughly every four years.
Halving events transparently determine the daily issuance of Bitcoin so that people can adjust their market expectations accordingly. Halvings also help gradually reduce Bitcoin in circulation before reaching Bitcoin's maximum supply of 21 million. Because these block rewards are halved over the years, people have more time to adjust to Bitcoin's circulating supply.
Bitcoin halving history
There haven't been many Bitcoin halvings in history so far, but each event has played a pivotal role in the crypto market. Here's a quick overview of previous Bitcoin halvings:
January 2009: Bitcoin was launched with a block reward of 50 BTC per block.
November 2012: The first halving event reduced the block reward to 25 BTC.
July 2016: The second halving event reduced the block reward to 12.5 BTC.
May 2020: The third halving event reduced the block reward to 6.25 BTC.
It is also worth noting that the 19 millionth Bitcoin hit the circulating supply in April 2021. This means that over 90% of the Bitcoin supply is currently in circulation, with only 2 million more Bitcoins left to be mined.
When is the next Bitcoin halving?
Since Bitcoin halvings usually occur in four-year cycles, the next Bitcoin halving should occur in 2024. Most predictions show that the Bitcoin reward will drop to 3,125 BTC in March 2024.
However, Bitcoin will automatically initiate a halving after block 210,000. Although the Bitcoin blockchain tries to create a new block every 10 minutes, this time may fluctuate depending on the total hash power. If more miners join in a short time, it could make the Bitcoin network faster temporarily, or vice versa if miners suddenly leave the Bitcoin network.
Nakamoto added a “difficulty setting” to Bitcoin’s code to help keep Bitcoin’s block time constant. These difficulty adjustments scan Bitcoin's hashing power every two weeks and change the complexity of the algorithmic puzzle. The more hash power, the harder the puzzle becomes to help slow down block verification.
Will the Bitcoin halving end?
The last Bitcoin halving will occur after the 21 millionth Bitcoin enters the market. This may not seem like too far off, as there are currently over 19 million BTC in circulation. However, thanks to halving events, most analysts believe that Bitcoin will not see its total supply until 2140.
