Author: James Page
Estimated read time: 4 minutes
Publication date: 11th Jul 2022 09:52 GMT+1
Crypto is so thrilling that we discover new Bitcoin (BTC) stories every day. Yet, there are a few major events that marked Bitcoin’s history, apart from its miraculous birth in 2009. The first was perhaps the infamous pizza order, which gave Bitcoin a monetary value. Then followed the fall of Mt.Gox, the birth of Ethereum (ETH), the Coinbase (NASDAQ: COIN) exposure to the stock market, and the series of halvings that came in between.
While all other top moments were a direct result of multiple external factors and market waves, halving lies at the very core of Bitcoin’s ecosystem — the blockchain.
What Is Bitcoin Halving?
To explain Bitcoin halving, it might be better to start with Bitcoin mining. Mining plays a central role in the Bitcoin ecosystem, “killing two birds with one stone.” It generates new Bitcoin units and verifies the transactions between the existing ones. In other words, miners get newly-minted coins as a reward for their effort in maintaining transparency on the blockchain. Given Bitcoin’s popularity, we can expect that everyone could take an “excavator” and drain the total supply of 21 million bitcoins in the spur of the moment.
However, this technically-advanced system has a built-in mechanism to prevent inflation. The demand for Bitcoin doesn’t increase its production but raises the difficulty level of mining instead. In addition, it reduces the reward amount after a certain number of mined blocks to balance the supply. This gradual reduction of the block reward is what we call halving.
In the Bitcoin realm, this halving happens every 210,000 blocks, or approximately every 4 years. This calculation is based on the predictable behavior of Bitcoin — a single block can gather around 500 transactions while the blockchain has a limited capacity to process no more than 6 blocks per hour.
History of Bitcoin Halving
When Satoshi Nakamoto's idea got down to work at the end of 2008, the block reward was 50 BTC. The first halving event happened 4 years later, decreasing the reward amount to 25 BTC. Accordingly, the second halving of 2016 split the reward down to 12.5 BTC, only to get 6.25 BTC after the last halving in May 2020.
With this halving rate, we can expect that miners will spend all supply reserves by 2140. But, there is not much to be spent. Nearly 19 million units have been already produced, with a rough projection that by 2030, nearly 99% of the bitcoins will already be in use.
When Will the Next Bitcoin Halving Take Place?
At this point, we are somewhere in the midway of the fourth halving event to bring a new reward of 3.125 BTC per block and a daily release rate of 450 bitcoins. Based on the above parameters, this event is expected to take place on May 4 2024, so “may the Bitcoin force be with you.” Halving has always disrupted the crypto market, but fortunately, with a bullish note.
Getting closer to the upper limit, you might think that the shortage of mining material will make miners redundant. Not really, miners will still be able to make a living from transaction fees that Bitcoin users pay directly to the blockchain.
The Bottom Line — Will Bitcoin Halving Affect the Crypto Industry?
The Bitcoin graph shows a repetitive movement after each halving — a rise in the Bitcoin’s price, which usually reaches its peak a year and a half after the halving event. This is a standard supply-vs-demand rule — the lower the production, the higher the asset scarcity.
Interestingly, experts' opinions are sharply divided amid the upcoming 2024 halving. While some are eagerly waiting for the halving to shake the sleepy crypto market, others assert that based on the latest events in the industry, this halving will be dull and rather “non-eventful.” History doesn't always repeat itself but we can be sure of one thing — Bitcoin halving encourages users to save up their bitcoins rather than spend them, thereby transforming Bitcoin into digital gold.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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