The Bitcoin Halving: What is it and Why Does it Matter?
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We believe in full transparency with our readers. Some of our content includes affiliate links, and we may earn a commission through these partnerships.The Bitcoin Halving generates buzz in the market for months before it occurs, but what is the Bitcoin Halving, and how does it affect Bitcoin’s price? In this guide, we’ll explore the halving event and learn why it matters to the Bitcoin community.
As the leading cryptocurrency, Bitcoin’s price moves also make waves for other cryptocurrencies that move in sympathy with BTC. This means the halving, while a Bitcoin event, affects the broad crypto market. Let’s find out what the halving is and why Bitcoin’s anonymous creator(s) built this curious feature into the protocol.
What is Bitcoin Halving?
Bitcoin’s Halving refers to when mining rewards are cut in half. At the Bitcoin network’s early 2009 launch, miners who found a new block received a mining reward of 50 bitcoins. By late 2012, the mining reward was cut by half, rewarding miners with 12.5 BTC for mining a new block. Fewer new bitcoins went into circulation as mining rewards.
While the halving occurs roughly every four years, it isn’t based on calendar dates. Instead, the Bitcoin halving occurs every 210,000 blocks. Bitcoin’s protocol adjusts the mining difficulty based on the network’s hash rate, leading to an average block time of about 10 minutes. The hash rate measures how much computing power is actively mining worldwide.
With a ten-minute average interval, Bitcoin miners produce about 52,560 blocks per year or 210,240 blocks every four years.
Bear in mind that the difficulty adjustment trails actual hash power, so blocks won’t always occur exactly at 10-minute intervals, and halvings won’t occur precisely at four-year intervals. However, the halvings at 210,000 block intervals are at the core of Bitcoin’s supply dynamic.
Bitcoin Halving History
Previous halvings occurred in November 2012, July 2016, and May 2020, with a fourth halving in April 2024. Each of these halvings reduces the number of BTCs miners receive by half.
Bitcoin Mining Rewards by Halving
- 2009 Launch: 50 bitcoins
- 2012 Halving: 25 bitcoins
- 2016 Halving: 12.5 bitcoins
- 2020 Halving: 6.25 bitcoins
- 2024 Halving: 3.125 bitcoins
The next halving, expected in 2028, will reduce the mining reward to 1.5625 bitcoins per mined block. The last bitcoin is expected to be mined by 2140, with halving cycles continuing until that time.
According to CoinGecko, Bitcoin’s price increased by more than 3,200% following each Bitcoin Halving. However, early halvings also coincided with dramatic growth for a then-small cryptocurrency.
Why Does The Bitcoin Halving Happen?
, the anonymous person or group that invented Bitcoin, designed the protocol with scarcity in mind. While Bitcoin is divisible, its supply is capped at 21 million bitcoins. This stands in stark contrast to traditional fiat currencies that come into circulation through debt issuance and which inflate their supply.
New bitcoins come into circulation through mining, an energy-intensive process that secures the Bitcoin blockchain. Halving the new supply every 210,000 blocks allows the Bitcoin community to adjust the change in supply while preventing a sudden stop and supply shock. The Bitcoin Halving tends to drive BTC prices north, although the exceptional gains in Bitcoin’s early years have slowed considerably as shown in the Bitcoin Halving chart from CoinGecko shown below.
It’s unknown whether Satoshi could foresee where the mining industry would go in the future. What began as a proof-of-work task that could be completed on a now-antiquated desktop computer now requires expensive specialized hardware called application-specific integrated circuits (ASICs) to mine competitively. Given the scope of the industry that has grown around Bitcoin mining, predictable halving cycles provide time to adjust to a 50% decline in revenue. However, this decline in BTC revenue may be offset by an increase in Bitcoin’s price.
When Was The Last Bitcoin Halving?
The latest Bitcoin Halving happened on April 19, 2024, reducing the block reward from 6.25 BTCs to 3.125 BTCs per mined block. At that time, a miner could earn about $200,000 worth of Bitcoin per block based on the Bitcoin price at the time. Bitcoin traders worldwide placed their bets around the expected price on “Bitcoin Halving Day,” and BTC closed up for the day with a gain of 0.3%.
The next Bitcoin Halving date is expected to occur in 2028. However, the exact date is still unknown. Because the Bitcoin network adjusts difficulty based on prior hash rates, the timing for block production can vary slightly, but the schedule of halving every 210,000 blocks remains the same.
As with previous halvings, the 2028 halving is expected to push prices higher as the supply of new bitcoins slows. Bitcoin price predictions point to a new all-time high in 2029, following the 2028 Bitcoin Halving.
Benefits of The Bitcoin Halving
Bitcoin’s Halving brings several advantages, including increasing scarcity and a positive effect on price. Following the first halving in 2012, Bitcoin’s price rose from $12 to more than $11,000. While much of the move was due to speculative buying, the halving also drove early buyers.
Positive Price Trend
Halving events historically have correlated to moves up in price. While earlier halvings saw massive gains, halvings yet to come will continue to reduce new supply, likely pushing BTC prices higher. As a caveat, the moves of several thousand percent between halvings may be smaller as Bitcoin has now reached a much broader market. This larger base of investors may also lead to less volatility, limiting downside risk while pushing prices higher due to Bitcoin’s scarcity.
Enhanced Long-Term Security
Bitcoin’s halving schedule of 210,000 blocks helps ensure miners can earn mining rewards long into the future. The last halving is expected to occur in 2140. Bitcoin miners also earn transaction fees for the blocks they mine, creating a never-ending incentive for miners.
Cons of The Bitcoin Halving
The Bitcoin Halving also brings some challenges. As mining rewards are halved, miners could struggle to make ends meet. Let’s explore some of the challenges miners face and how halvings could affect the Bitcoin network.
H3: Reduced Mining Rewards
The most obvious concern centers on reduced mining revenue for miners. Historically, this hasn’t been a long-term problem because increases in the price of BTC offset the reduced revenue. The math is simple. After a halving, BTC prices need to double to prevent losses for miners.
Many miners also hold mined bitcoins to sell at market peaks. However, the ongoing costs of running miners often creates the need to sell some bitcoins at current market prices.
If Bitcoin miners were to see meaningful losses over a prolonged period, expect some consolidation in the industry as the hash rate and equipment move to stronger mining businesses. Bitcoin also adjusts the difficulty for miners based on the network’s overall hash rate. In a worst-case scenario, if a large group of miners stopped mining, the difficulty level would fall until the combination of price and rewards per block makes mining attractive again. While the market governs itself with the aid of difficulty adjustments, the hash rate has continued to climb, even with halving events.
Transition to Transaction Fees
Although the last bitcoin is expected to be mined in 2140, halvings will dramatically drop mining rewards over time. Eventually, the Bitcoin network will only reward miners with transaction fees for transactions in the blocks they mine. As a practical matter, this transition will occur before the last bitcoins are mined, as mined bitcoins will dwindle as a percentage of block rewards.
Transaction fees already represent an increasing percentage of total block rewards for miners. This aspect is also self-governed by the market. To complete a transaction quickly, users must pay enough in transaction fees to create an incentive for miners. Newer innovations on Bitcoin, such as Runes and Bitcoin Layer 2 chains, could drive demand, pushing fees for miners and keeping the incentive alive.
Should You Invest Before a Bitcoin Halving?
Historically, halving events have treated investors quite well. However, it’s essential to keep in mind that the parabolic price moves seen in Bitcoin’s early years may be more subdued going forward. Balance your expectations based on the current price and the larger macroeconomic landscape. Price moves may not necessarily correlate with halvings, and previous halvings didn’t create a price spike the day after Bitcoin halving day.
However, halvings do reduce the new supply of bitcoins reaching the market and are bullish for BTC’s price over the long term. Dollar-cost averaging, buying fixed amounts at fixed intervals, helps reduce the effects of market volatility and ensures you add to your stack before each halving.
Conclusion
Bitcoin Halvings occur every 210,000 blocks, which works out to about once every four years. Historically, halvings have led to higher prices because the halving reduces the amount of new bitcoins reaching the market. However, Bitcoin’s mining rewards will eventually end in 2140, leaving transaction fees as an incentive for miners to secure the network. Transaction fees have already become a significant part of revenue for miners, ensuring income for miners and making halvings a net positive for BTC’s price over time.
FAQs
What is the importance of halving?
Bitcoin’s halvings gradually reduce the supply of new bitcoins over more than a century. This process maintains bitcoin’s scarcity while allowing the miners to adjust to changes in BTC earnings relative to the price of Bitcoin.
Will Bitcoin go up or down after halving?
Bitcoin’s price historically goes up following a halving. However, the increase in price occurs gradually rather than on or immediately after the Bitcoin halving day.
Should you buy Bitcoin before or after halving?
Buying before the halving helps ensure you capture gains related to the halving. Building a position through dollar-cost averaging lets you buy both before and after the halving while also reducing volatility risk.
What year is the next halving of Bitcoin?
The next Bitcoin Halving is expected in 2028, although the exact date is still unknown because the network will see periodic difficulty adjustments that as average block times fluctuate from their 10-minute target.
References
- The Bitcoin network completes the fourth-ever ‘halving’ of rewards to miners (cnbc.com)
- Bitcoin Price Increased an Average of 3,230% After Each Halving (coingecko.com)
- Bitcoin halving isn’t a big deal for long-term investors, but may have a ‘huge’ impact on one key group, says Columbia professor (cnbc.com)
- Here’s How Much $1,000 Invested During The 1st Bitcoin Halving Is Worth Today (finance.yahoo.com)
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