Crypto Glossary

Posted on September 13, 2021 in
Glossary

Halving

A Bitcoin halving process occurs after each set of 210,000 blocks has been mined, resulting in a halving of the incentives for mining bitcoin. As more blocks are mined, Bitcoin halving reduces the incentives for mining Bitcoin, ensuring that the quantity of bitcoin in circulation does not grow exponentially, which also tends to put upward pressure on the cryptocurrency’s price.

What is Bitcoin halving?

Halving is when the number of bitcoin miners getting for uploading new transactions to the blockchain is being cut in half. This rare occurrence takes place after each set of 210,000 blocks has been mined, resulting in a halving of the incentives for mining bitcoin. As more blocks are mined, bitcoin halving reduces the incentives for mining bitcoin, ensuring that the quantity of bitcoin in circulation does not grow exponentially, which also tends to put upward pressure on the cryptocurrency’s price./coin-info/bitcoin/

A single bitcoin transaction block is identified by a file of 1 MB that contains all Bitcoin transactions data. Over time, the number of transactions rises, which means that the number of blocks containing information about these transactions also increases. And as a result, the bitcoin blockchain grows in size. During the 4th quarter of last year, the size of the bitcoin blockchain had exceeded 300 GB, an increase of 160 times over the size of the blockchain just six years ago.

Miners are those who are motivated to participate in the race to add the next block on the bitcoin blockchain. To create a 64-character hash key that locks the block, miners utilize powerful computers and solve hard mathematical problems. Miners are compensated in the form of bitcoins for carrying out these actions.

How bitcoin halving works?

The payout sum for mining a block reduces by half when every 210,000 blocks are mined. In the early days of bitcoin, each block contained a reward of 50 bitcoins. The first 210,000 blocks were mined by 2012, with the incentive lowered in half to 25 BTC.

The reward for solving a block was lowered further from 25 BTC to 12.5 BTC in the 2016 bitcoin halving once another set of 210,000 blocks had been mined. The most recent bitcoin halving event took place in May 2020. The reward had been cut in half to 6.25 BTC for each block when the third set of 210,000 blocks had been mined. 

From what we all can see, 210,000 blocks are mined in approximately four years – just like the Olympics and the FIFA World Cup! Due to this, it is expected that the next halving will occur in 2024.

Halving’s effect on bitcoin’s value

While experience shows that the price of bitcoin tends to rise following a halving, this does not necessarily mean that halving causes an increase in the price of bitcoin. Although pricing is strongly influenced by halvings, it is also strongly influenced by several other factors. 

Initially, the first halving did not have a huge impact on the Bitcoin value. Its price grew to $12 from $12 in 2012. However, the price skyrocketed to $1,100 within the year after. 

The bitcoin network collectively completed the mining of 420,000 blocks at the end of 2016, resulting in the second Bitcoin halving. Its value in the market was unstable at first, going around $500 to $1,000. But by December 2017, it had grown exponentially to over $20,000. 

Bitcoin’s third halving occurred in May 2020, and it began a new hype train for the cryptocurrency. The price of bitcoin at the time of the halving was $9,000. And in January 2021, BTC exceeded all expectations, surpassing the $40,000 mark.

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