Bitcoin Halving: What does it mean and how it affects prices?
Approximately every 210,000 blocks, a noteworthy event takes place in the Bitcoin network: the miners' reward for successfully mining a block gets halved.
Simultaneously, the rate at which new coins are introduced into circulation slows down. This significant reduction in rewards is known as "halving."
The halving process will continue until the total supply of Bitcoins reaches its maximum limit of 21 million coins, a milestone expected to be achieved around the year 2140, as per preliminary projections.
Cryptocurrency itself is based on the principle of Proof of Work, which means that every transaction is confirmed by powerful computers by solving various complex mathematical puzzles, and then the confirmed transaction is transferred to the network in one of the blocks forever.
In this blog we will tell you exactly what halving means and what will it affect be.
What is Bitcoin Halving?
Halving plays a vital role in the Bitcoin ecosystem and is intrinsically coded into its source code, serving several essential functions:
- Limiting Supply
As the halving events occur in the Bitcoin network, the reward for mining each block decreases, leading to an extended mining period. With each halving, the number of newly mined Bitcoins diminishes. Before the halving, approximately 1,800 Bitcoins were mined on a daily basis. However, in May 2020, after the halving event took place, this mining rate was reduced by half to 900 BTC per day. This gradual reduction in newly minted coins contributes to the controlled supply and increasing scarcity of Bitcoin over time. As a result, Bitcoin becomes progressively harder to mine, reflecting its deflationary nature and reinforcing its value as a digital asset.
- Crypto inflation
The extended mining process due to halving ensures that all Bitcoins will be gradually introduced into circulation over time. As the reward for mining each block decreases, the rate of new coin creation slows down, making newly mined coins increasingly scarce. This controlled issuance of new coins is a critical factor in Bitcoin's deflationary nature.
- Price rise
The controlled reduction in the supply of newly mined Bitcoins over time, as a result of halving, can lead to an increase in demand for the digital currency. With a limited supply of new coins entering the market, the scarcity of Bitcoin becomes more pronounced, and this scarcity can drive up demand among investors and users.
One of the key implications of halving the Bitcoin network is its impact on miners' interests and revenue. As the mining reward reduces with each halving event, miners receive fewer newly minted Bitcoins for their efforts. This reduction in block rewards might lead some miners to question the profitability of their mining operations.
Does Halving Influence Bitcoin’s Price?
Historically, halving events in the Bitcoin network have indeed had a positive impact on the price of the leading cryptocurrency over the long term.
Following the first halving in 2012, Bitcoin experienced a remarkable surge, reaching a record high of $1,000 by November 2013. This significant price increase garnered substantial attention and interest in the cryptocurrency.
Similarly, after the second halving in 2016, Bitcoin's value soared once again, culminating in an all-time high of $20,089 on December 18, 2017. This extraordinary price rally garnered widespread media coverage and brought Bitcoin to the forefront of mainstream discussions.
The combination of limited supply and constant or rising demand creates a deficit, where the number of available Bitcoins may not be sufficient to meet the demand. As a result, the natural market forces push the price of Bitcoin upward in response to this scarcity, leading to price appreciation over time.
How and Why do Miners get Rewards?
Currently, the field of Bitcoin mining is bustling with activity as miners from all over the world are actively participating in the process. This includes both solo mining, where individual miners work independently to validate and add blocks to the blockchain and receive the full Bitcoin reward for each successfully mined block, and group mining, where miners collaborate as part of a mining pool to collectively work on mining blocks.
The process of generating new Bitcoins is closely tied to the creation of new blocks in the Bitcoin blockchain. When a miner successfully mines a new block, they are rewarded with a certain number of newly minted Bitcoins.
Will Block Creation Reward be suspended?
Once the maximum supply of 21 million Bitcoins is mined, which is estimated to occur in the year 2140, there will be no new Bitcoins generated as a block reward for miners. At this point, all the Bitcoins that will ever exist will be in circulation.
However, even after the last new Bitcoin is mined, the Bitcoin network will continue to function, and miners will still have a crucial role to play. Instead of receiving new Bitcoins as a reward for mining blocks, miners will be incentivized through transaction fees.
Transaction fees are the fees paid by users who send Bitcoin transactions. These fees are voluntarily added by users to prioritize their transactions and have them confirmed quickly by miners. As the demand for faster and more reliable transactions increases, users are willing to pay higher transaction fees to have their transactions included in the next blocks.
Bitcoin Halving Dates
- 2012 November:
Reward Before: 50 BTC
After: 25 BTC
Price before halving: $12.35
Price 5 month later: $127
- 2016 July:
Reword Before: 25 BTC
After: 12.5 BTC
Price before halving: $650
Price 5 month later: $758
- 2020 May:
Reward Before: 12.5 BTC
After: 6.25 BTC
Price before halving: $8600
The next halving will occur in 2024 and 2028.
Summary: Bitcoin halving – the most important event for crypto?
Bitcoin halving, when the reward for miners is getting less and less creates higher demand for BTC while the supply remains same.
As basic economics tells us, that’s the time when the prices go to the Moon.
Many traders think that the best time to buy Bitcoin is before halving and not only traders tell that, but the statistics also.