Every four years something out of the ordinary happens in the crypto universe, a tradition-like occurrence that keeps crypto traders on the edge of their seats. This special event is known as the Bitcoin halving (or halvening) and, as you will soon see, there have only been three Bitcoin halvings to date.
If you want to find out more about the curious nature of Bitcoin halving, what it means, and why it happens, keep reading this article.
What Is Bitcoin?
We can’t talk about Bitcoin halving if we don’t go over Bitcoin and its specifics first.
As you probably know, Bitcoin is a digital currency that operates on a peer-to-peer network. It was created in 2009 by the pseudonymous developer that goes by the name of Satoshi Nakamoto.
From the start, Bitcoin brought promises into the fold, starting with lower transaction fees and decentralization, all the way to improved network stability when compared to traditional online payment methods. Moreover, another one of its stronger suites is that it is completely user-operated, and doesn’t rely on central authorities like central banks and governments for transaction verification.
The Bitcoin network is a collection of computers that run its code and store the blockchain, a digitally distributed public ledger on which all of Bitcoin’s transactions are recorded and stored. The blockchain is a collection of data blocks, each of which has a limited storage capacity.
All of the computers that run the blockchain have access to the same records or lists of transactions. On the one hand, these blocks are transparent and anyone can view the confirmed transactions but, on the other, this also makes them foolproof for scams and hacks.
Bitcoin Mining and Block Rewards
When you hear the term Bitcoin mining, you might imagine a sort of pickaxe rough terrain mining, a dark damp shaft, and flickering light to keep your sanity when it’s dark as a dungeon deep down in the mine, but when it comes to Bitcoin, we’re talking about a more relaxed sort of mining that takes place in the virtual world.
Bitcoin mining is done with sophisticated high-end computers that solve complex mathematical problems. These mathematical puzzles can’t be solved by hand and instead require massive amounts of computing power, giving even the most powerful computers a run for their money.
The role of the miners in the Bitcoin mining process is twofold. On the one hand, they solve these mathematical equations on the Bitcoin network and, in return, receive block rewards in crypto. On the other, by solving these equations and verifying the transactions, the miners ensure that the payment network remains secure and trustworthy.
The first Bitcoin miner to solve the mathematical equation and create a block of verified transactions earns a Bitcoin block reward. After that, a new equation is introduced and the cycle begins anew.
The Bitcoin network is designed to produce new coins at a constant pace, which means that the equations are getting harder every two weeks to ensure a steady stream of coins. Typically, a new block is being added every 10 minutes.
The total supply of Bitcoin is limited to 21 million coins, and every four years there is a halving event that cuts the mining reward for generating new blockchain blocks in half. The halving method was intentionally introduced as an anti-inflation rate measurement.
This event takes place every time the Bitcoin network has mined roughly 210,000 blocks, and thus slows the rate at which new coins are put in circulation. By now, around 19 million BTC have been mined.
As a result, it is estimated that the halving will go on until the year 2140. When this point is reached, the miners will probably earn rewards through the fees sent by users for processing their transactions. These fees will ensure that miners will still be motivated to keep verifying transactions and filing blocks to keep the network alive.
So far, there have been 3 previous halvings, starting back in 2012 when the block reward was 50 BTC, reducing it to 25 BTC. The second halving slashed the award in half so that miners got 12.5 BTC per block. Finally, the third halving reduced the award to 6.25 BTC, its current rate.
The First Halving
The first halving of Bitcoin occurred on November 28, 2012. Back then, it didn’t have much influence on the price of Bitcoin, but at the beginning of 2013, the value of the coin began a steady growth cycle. In April, it fell a bit but continued going up well into autumn when it reached the price of $1,100 per coin. Cryptocurrencies have always suffered from their volatility, so Bitcoin’s price went down again in 2015, managing to get back up when the next halving cycle got close.
The Second Halving
The second halving occurred on July 9, 2016, and was highly anticipated by the community thanks to the increased general acceptance of Bitcoin during the previous few years. This gave way to a price increase that started in May, almost a month and a half before the halving. There was a sudden price drop in the middle of June and prices fell a bit more after the initial halving but soon climbed up again.
After a steady increase over the course of a year, Bitcoin reached its all-time high in 2017 with a total value of $19.700. It’s not clear whether the halving is the main factor that influenced its price, but the higher interest and the surge of new crypto users might have a way in how things developed.
The Third Halving
The third halving occurred on May 11, 2020. Similar to the previous halvings, it didn’t cause a sudden price increase. This is also due to the coronavirus outbreak in March of 2020 that caused the prices to drop out of the blue. This makes it hard to calculate how halving actually has an influence over Bitcoin’s price if any. It should be taken into consideration that the total number of mined bitcoins per year is smaller than the number of coins that are actually traded on the exchanges. It seems unlikely that a decrease in supply would cause a price increase. It’s probably the growth in demand rather than the supply limit that might increase the price in the future.
The next halving is scheduled to happen around 2024 and the block reward will be cut to 3.125 BTC. It remains to be seen how this will influence Bitcoin’s value and its demand in the future.
What Will Happen When All Bitcoins Are Mined?
This is bound to happen, and according to the estimates, this event will transpire in the year 2140. This would be the year when all 21 million bitcoins will be mined, and then the well will run dry. At this point in time, the halving process will cease to exist since no more new bitcoins will be available for mining.
The miners that work on the blockchain will be motivated to keep the network alive by receiving fees instead of block rewards. Will this skyrocket the price of Bitcoin and give it a status as a rarity, or will it plummet into irrelevance, replaced by an even more innovative solution that will be developed in the next 120 years. No one can say for sure.
A Few Words Before You Go…
In the decade that it exists, Bitcoin has taken the world as a maelstrom, gathering more power and increasing in value as it spread to all corners of the world. From its humble beginnings to its present-day value, one thing remains certain, Bitcoin is here to stay, at least for the next 120 or so years. There will be more halvings for sure, the number for block rewards might even go into decimals in the next 15 years, but only the future can tell what it has in store for this digital currency.
If you wish to enter the game of crypto, you can make your first purchase on popular crypto exchanges like Coinbase or Binance. There’s no need to make a big investment, you can start buying digital assets at the meagre price of $5, plus Bitcoin goes into decimals so small that you can purchase a 100 millionth part of a whole coin.