Bitcoin Halving: All You Need to Know

Investing
Updated: 9th Jan 2021
Written by Sean Graytok
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Investing
January 9, 2021
Written by Sean Graytok

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The last Bitcoin halving was in May 2020, marking its third reduction in Bitcoin mining rewards. But what does that mean?

This article will define Bitcoin halving, why it happens, and how it affects the price of Bitcoin.

What is Bitcoin Halving?

Bitcoin halving refers to the rewards that Bitcoin miners receive for providing the computational power to support the blockchain network.

Miners are paid in bitcoin for providing this service, but the amount is programmatically “halved” every 210,000 blocks mined (around four years).

It may be difficult to understand halving without first discussing crypto mining in general. Let’s quickly define mining before we jump back into Bitcoin halving.

Quick Mining Tutorial: What, Why, and How?

What: Bitcoin’s network requires massive amounts of processing power to operate effectively and ensure security. People that provide the computational power to support Bitcoin’s network are called miners.

Why: They solve mathematical problems using cryptography to confirm transactions’ security and prevent double spending on the blockchain. But they do not provide this feature out of the goodness of their heart. Miners are rewarded with Bitcoin.

How: People used to mine Bitcoin on normal desktop computers, but competition increased when miners discovered better ways to do it. Remember, the fastest and most accurate miner gets paid. Therefore, mining has become an expensive operation that requires hardware rigs and complex software, with some rigs costing hundreds of thousands of dollars apiece.

Related: Best Cryptocurrency Exchanges

Back to Bitcoin Halving

New Bitcoin is released into the supply every 10 minutes, but the amount released with each mined block is called the “block reward.”

This block reward is what is “halved” every four years, by order of Bitcoin’s inventor Satoshi Nakamoto. Miners compete for these rewards by solving the associated mathematical problems required to validate each block.

The reward started with 50 BTC per block, then was reduced to 25 BTC, then 12.5 BTC, and today the reward is 6.25 bitcoin per block.

Why does Bitcoin do Halvings?

Bitcoin has pre-scheduled “supply shocks” determined by Satoshi’s halving schedule. Unlike fiat currencies subject to unpredictable inflation or deflation policy decisions made by politicians, we know exactly when and how much new Bitcoin will be created.

Over the next 120 years, the remaining 2.4 million Bitcoin will be introduced into the network. The rate at which it enters will decrease every four years at each new halving.

For example, 99% of bitcoin will have been mined by 2032, but the remaining 1% will take until 2140 to be mined because, well… math.

Bitcoin halvings are necessary to slow the supply growth and increase the demand of the digital asset. In theory, if supply is decreased over time, the scarce asset’s demand will grow, and so will its price.

Bitcoin’s Halving Schedule

HalvingDateBlockBlock RewardTotal Mined % Mined
BTC Officially LaunchedJanuary 3rd, 200905010,500,00050%
1st HalvingNovember 28th, 2012210,000255,250,00075%
2nd HalvingJuly 9th, 2016420,00012.52,625,00087.5%
3rd HalvingMay 12th, 2020630,0006.251,325,00093.75%
4th HalvingYear 2024840,0003.125656,25096.875%
5th HalvingYear 20281,050,0001.5625328,12598.4375%
6th HalvingYear 20321,260,0000.78125164,062.5099.21875%

What Happens to Bitcoin’s Price After a Halving?

Bitcoin’s price increased rapidly following its first and second halving’s in 2012 and 2016. Bull markets lasted for 54 weeks and 74 weeks respectively, and then experienced serious pullbacks in the range of 70-80%.

Bitcoin was around $9,000 at the time of its last halving in May 2020 and increased gradually over the next five months, surpassing $11,500 in mid-October. However, its price took off in late October and climbed to $40,000 in January 2021.

Time will tell how long this bull run will last, and if a correction will be as harsh as previous ones.

Halving’s Impact on Bitcoin Miners

Miners will be less incentivized to continue with each halving of bitcoin rewards. The competition to validate new blocks will increase, and the cost to continue will exceed revenue for some mining groups.

However, miners will still be needed after the last bitcoin is created in 2140. Transactions on the network will require verification on the blockchain. Miners will collect transaction fees for validating these transfers and payments.

Bitcoin Halving FAQs

Is Bitcoin halving good?

Historically, Bitcoin enters strong bull markets immediately following a halving. This price rise is probably caused by an increase in Bitcoin’s demand as investors react to its supply rate decreasing.

What will happen after Bitcoin halving?

The “block reward” that miners receive for powering the blockchain will decrease by 50%. Today, miners get 6.25 bitcoin every 10 minutes (or each block mined) for providing the required processing power. At the next halving in 2024, the reward will be halved to 3.125 bitcoin for each block.

Does Bitcoin halving increase value?

In theory, by decreasing the supply of a scarce asset that people agree is valuable, its demand will rise. Halvings reduce the amount of new Bitcoin entering the system, resulting in a rise in its demand.

Learn More: Is Bitcoin a Good Investment?

When is the next Bitcoin halving?

While the exact date is unknown, the next Bitcoin halving will occur in 2024. Block rewards are halved every 210,000 blocks, which takes approximately four years.

This will be Bitcoin’s 4th halving era, and 96.875% of Bitcoin’s 21 million fixed supply will be mined at its completion in 2028.

Bottom Line: Bitcoin Halving

Bitcoin controls the supply side of the supply and demand curve. With predictable supply increases at known amounts, investors are left with pricing in demand. The halvings are essential for increasing the demand for Bitcoin.

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Sean Graytok
Sean Graytok
Sean is a lifelong student of the financial, media, and marketing industries. He is a Generation Z investing expert and is on a mission to empower investors to make the most of their money.