Bitcoin halving is an event where the reward of mining a block of Bitcoin gets halved every 210,000 blocks (around four years) until the maximum limit of 21 million reaches. Since the Bitcoin supply is finite, there is an increase in demand for Bitcoin after every halving.
Bitcoin was one of the first well-known digital assets anonymously introduced to the world. People who had taken a slight interest in mining Bitcoin have become rich now, and the rest are possibly in regret. In the past, every halving has led to a slight increase in the price of Bitcoin. Even during pre-halving, the price of Bitcoin was on the rise. So if you are looking to invest in Bitcoin before the next halving event could be an ideal time.
Before we predict how beneficial Bitcoin halving is, let’s have a look at what Bitcoin halving is and how it works.
What is Bitcoin Halving?
Bitcoin is a digital asset that is usually mined to increase the supply and verify transactions. To mine bitcoin, one must use CPUs and electricity to generate multiple blocks. For such mining, a certain reward is set (initially 50 BTC), so that the miners feel it is worth their resources. The reward also should not be too high that there is an oversupply, and the limit of 21 million bitcoins crossed.
Satoshi Nakamoto created Bitcoin, and he didn’t want Bitcoin to die within a couple of years. He wanted it to be self-sustaining similar to mining precious metals. So over time, mining Bitcoin was made difficult, and the rewards kept decreasing by 50%.
The first halving occurred in 2012, the second in 2016, and the third will happen in 2020.
Bitcoin halving mainly encourages users to save up their coins for the future rather than spend it. It is an inflation control technique to ensure Bitcoin sustains for a long time.
Generally, the lesser coins are left, the higher the price should go.
How Does Bitcoin Halving Work?
- The Bitcoin code has a line that said that after every supply of 210,000 coins, the reward comes down by 50%.
- Every transaction needs verification done in groups called ‘blocks’.
- Every block processed and generated gave a reward of 50 BTC to the miner initially. After the first 210,000 blocks, the reward became 25 BTC (in 2012). And it will reduce to 12.5 BTC in 2020.
- For every block and transaction verified, the reward is decided, and it changes at every halving.
- How is Bitcoin halving beneficial?
- Bitcoin halving affects its market value, as more and more coins are released to the network, the demand increases. With fewer coins remaining and potential miners dropping out, the value of Bitcoin will rise.
With rewards getting halved every four years, there might come a time when miners feel that their rewards are not well compensated and stop mining altogether. People who mined and saved up their BTC since the start is at a higher advantage than others. They need to keep holding on to their coins and wait for the price to soar.
If the rewards were still at 50 BTC, there wouldn’t be any more supply of Bitcoin. Hence, Bitcoin halving extends the life of Bitcoin. If fewer people mine Bitcoin in the coming years, then it will take a long time to reach the target of 210,000 coins meaning the reward will remain the same for a long time.
How Bitcoin Halving Affects Bitcoin Price
Bitcoin Halving is very important because it sends a clear signal when the released bitcoin price rate drops. The coin supply release is capped at US$ 21 million which allows forecasting of the coin supply in circulation over different time periods. For example, the coin supply in October 2021 was US$ 18.85 million. The remaining US$ 2.15 million were released as a reward to the miners.
In addition, Bitcoin Halving is one of the reasons to push the coin price as the volume of coins in circulation is cut every four years, causing the coin’s value to increase due to decreased supply or ‘shortage’ which increases the coin demand.
How Bitcoin Halving Affects Bitcoin Miners
There are some impacts of Bitcoin Halving on miners. One of them is that the rewards for mining are reduced. As a result, small miners or those who do not have bitcoin mining tools have to survive in this ecosystem because they have to compete with miners with full power, including stronger bitcoin mining graphics cards, better bitcoin mining computer systems, or more budget for cloud mining services.
Furthermore, the Bitcoin mining efficiency depends on the crypto price. If the crypto price increases, the number of miners will decrease. This causes up to 51 percent of more network attacks as miners move away from the network, resulting in blockchain security issues.
Bitcoin Halving History
Let’s take a look at each Bitcoin Halving event and learn how Bitcoin Halving has affected Bitcoin movement so far.
Bitcoin Halving 2012
The first Bitcoin halving took place on 28 November, after releasing a total circulating supply of 10.5 million BTC, with the coin valued at US$ 11.
Bitcoin Halving 2016
The second Bitcoin halving took place on 9 July, releasing a coin supply of 5,250,000 BTC, mining a total of 420,000 blocks. The coin price fluctuated moderately, between US$ 500 – US$ 1000 before reaching US$ 20,000 in December 2017.
Bitcoin Halving 2020
The third Bitcoin Halving took place on 11 May, the year of the crypto market. In an uptrend, a supply of 2,625,000 BTC was released. The Bitcoin price at the time was US$ 9,000 and rose to US$ 30,000 at the end of the year.
What Happens After the Next Bitcoin Halving?
The next Bitcoin halving is expected in early 2024. The coin supply will be released for 1,312,500 BTC. The miners’ rewards will be reduced to 3.125 BTC, so Bitcoin investors and traders should keep an eye out for any upcoming Halvings as it could cause some instability and disruption in the crypto market.
Bitcoin Halving History and What You Could Expect in 2020
In the past, Bitcoin halving has led to a slight increase in its value and has helped reached certain highs in a particular year.
Some analysts and experts are positive about the halving, as it can lead to an increase in the value of Bitcoin. While other industrial experts claim that there won’t be any effect on the value, and it will just be a non-eventful day.
Some say that the Bitcoin bull may or may not run this year. Many analysts are looking forward to the halving. Demand for Bitcoin has not always led to an increase in the price. There are many altcoins or other digital assets coins in the market, and people may shift over to them.
According to the pattern in history, Bitcoin prices should have started soaring in April 2020, and more traders might start purchasing some coins leading to even more increase in the price and demand.
Bitcoin Halving makes Bitcoin more valuable. Investors should always follow the news and be ready for the next halving event. If you live in Singapore, click here to see Zipmex guide on how to buy Bitcoin in Singapore. Don’t miss out!
Will Bitcoin Come To An End?
If the rewards keep halving like they do every four years at one point, the miner may feel that it is not worthy to mine Bitcoins anymore. Bitcoin mining requires a certain amount of electricity and computer resources, and the miners might feel that the rewards don’t compensate them enough. They may switch over to mining other digital assets or begin digital assets trading.
Many large organizations might still continue to mine Bitcoin, and this will lead to less decentralization of the network.
With the supply of Bitcoin coming to an end in 2140, there might be an increase in demand for Bitcoin. By that time, the digital assets market may be more stable and valued.
People who mined the coin early or who purchased it first have a considerable advantage over others; the blockchain is itself built that way. There are multiple digital wallets available that can hold your BTC securely.
Even if the number of miners reduces or becomes null, Bitcoin will stay alive by trading and various digital assets transactions.
Bitcoin halving is the main reason why Bitcoin is at the rate it is today. If there were no halving, Bitcoin would still be worth only a couple of dollars.
In the past, many users have bought the coins at a lower price and sold them once it reaches a good profit. These people haven’t benefited from BTC. Such people do short-term trading and earn profits from the rise and fall of various digital assets.
We can only wait and find out what the next Bitcoin halving will do and speculate based on various predictions.
