On the Bitcoin blockchain, a “block” is a file that contains 1 MB of Bitcoin (BTC) transactions. By solving a complex mathematical problem using specialized hardware, creating a random 64-character output called a “hash,” finishing the process, and locking the block, the miners compete to add the next block. Miners receive Bitcoin in their Bitcoin Wallet for completing these blocks.
How does Bitcoin halving work? When the cryptocurrency was first created, miners were paid 50 Bitcoins per block. As a result, early users were enticed to mine the network, even before it was evident how successful it would be. Every 210,000 blocks mined, or roughly every four years, the rate at which new Bitcoin is created decreases by half.
In Bitcoin halving history, the last three halvings have occurred in 2012, 2016 and 2020. Bitcoin’s first halving occurred in 2012, when the reward for mining a block was reduced from 50 to 25 BTC.
The halving event in 2016 reduced incentives to 12.5 BTC for each block mined, and as of May 11, 2020, each new block mined generates only 6.25 BTC. It is predicted that the next Bitcoin halving will take place in 2024. Approximately 2140 will be the end of this system.
What is the purpose of Bitcoin halving?
The Bitcoin mining algorithm looks for new blocks every ten minutes. As more miners join the network and add more hashing power, the time it takes to find blocks will decrease. Every two weeks or so, the mining difficulty is reset to restore a 10-minute objective. Since the Bitcoin network has grown dramatically over the last decade, the average time it takes to locate a block has consistently remained below 10 minutes (roughly 9.5 minutes).
There will be 21 million Bitcoin supply. The generation of new BTC will cease when the total number reaches 21 million. Due to Bitcoin halving, the quantity of Bitcoin that can be mined per block drops over time, making BTC more valuable and rare.
When each halving is complete, the incentive to mine Bitcoin would decrease. On the other hand, Bitcoin halvings are linked to massive increases in the price of BTC, giving miners an incentive to mine more even though their payouts have been halved.
As Bitcoin prices rise, miners are encouraged to continue mining. Alternatively, miners may lose their incentive to create more Bitcoin if the price of the digital currency remains low and block rewards are reduced. This is due to the fact that mining Bitcoin requires a lot of computer power and electricity.
Why does Bitcoin halving matter?
Halving a Bitcoin is usually accompanied by a lot of turmoil for the cryptocurrency. Due to the halving cycle, the supply of available Bitcoin decreases, increasing the value of Bitcoins yet to be mined. With such changes comes the possibility of profit.
BTC’s first halving took place on Nov. 28, 2012, when it was around $12; one year later, it reached nearly $1,000. As a result of the second halving on July 9, 2016, Bitcoin’s price plummeted to $670 at the time but rose to $2,550 by July 2017. In December of that year, Bitcoin reached an all-time high of about $19,700. Bitcoin’s post-halving booms also had other factors to consider:
- More press coverage of Bitcoin and other cryptocurrencies.
- An interest in the anonymity of digital assets.
- A gradual increase in the number of real-world uses of the currency.
Even so, if you believe in the value of history, past Bitcoin halvings have been long-term bullish drivers for the cryptocurrency. The number of Bitcoin miners is widely expected to decline mainly because the economic benefit for mining becomes less enticing and, for less effective miners, unprofitable as a result.
Bitcoin’s halving represents its deflationary tendency regularly. Bitcoin’s decentralized nature means it cannot be printed into oblivion by governments or central banks, and the total supply is completely known since its inception.
When is the next Bitcoin halving event?
Over 19 million, or almost 90%, of the 21 million Bitcoin that can ever exist have already been mined. Each day, approximately 900 new Bitcoins are mined and enter digital circulation. However, faster mining rates have resulted in higher mining rates, so it could be more.
According to predictions, the last fraction of Bitcoin will be mined in 2140 as halvings continue.
In the future, mining payouts will be cut in half again, but no specific date has been set. The answer will be revealed after mining the 210,000th block since the previous halving.
With new Bitcoins mined every 10 minutes, the next halving is likely to occur in early 2024, when miner payouts will be halved to 3.125 BTC.