What Is Bitcoin Halving and How Does It Affect BTC Price?
About every four years, the amount of new bitcoins per block is halved. This can push the BTC price up. Here is how to predict its effects.
What Is Bitcoin Halving?
Bitcoin has many characteristics embedded in its code, which is programmed to allot a total maximum supply of 21 million BTC. Two of Bitcoin’s most important aspects are its fixed supply and decreasing block rewards, which occur about every four years. This periodic decrease in the rate of bitcoins issued into circulation is called ‘Bitcoin halving’.
Back in 2012, the reward was 25 bitcoins per block, and in 2016, it decreased to 12.5 bitcoins per block. As of March 2023, miners are rewarded 6.25 bitcoins per block mined.
Get all the details on the biggest crypto by market cap in this in-depth article: What Is Bitcoin?
How Is Bitcoin Halving Correlated to Bitcoin Mining?
For every 210,000 blocks, the number of newly issued bitcoins is cut in half. This translates to roughly every four years, depending on how quickly blocks are mined, which averages about 10 minutes.
Blocks are added to the Bitcoin blockchain by a process called mining, which typically involves custom-made computers called Application-Specific Integrated Circuits (ASICs) — computers designed to hash compute as quickly as possible.
Mining is used to permanently add transactions to the blockchain without the interference of any centralized entity. Miners are incentivized to secure the network by spending resources (mining) and are subsequently rewarded with bitcoins.
How Many Bitcoin Halvings Have There Been?
There have been three Bitcoin halvings so far: the first one occurred in November 2012, when the block reward was decreased from 50 bitcoins per block to 25 bitcoins per block; the second halving dates back to July 2016, when the reward per block was reduced again, from 25 bitcoins per block to 12.5 per block; the third halving happened in May 2020, when block rewards decreased from 12.5 bitcoins per block to 6.25 bitcoins per block.
When Is the Next Bitcoin Halving?
Bitcoin has seen an increasing hashrate since its conception, meaning block times have come to average less than 10 minutes now. As these fluctuate, it is hard to predict the exact date of the next halving.
A future halving is estimated to occur in 2024, where the reward will be reduced from 6.25 to 3.125 bitcoins per block mined; the fifth halving is estimated to occur in 2028, with the reward halved to 1.5625 bitcoins per block mined.
Does the Halving Affect Bitcoin’s Price?
BTC price can be affected by the halving as:
- Rewards are halved, which promotes healthy and sustainable growth of the network. By reducing the rate at which new bitcoins are generated, the halving ensures that Bitcoin’s supply remains limited and finite, which can help maintain its value over time.
- The inflation rate of Bitcoin decreases after a halving, meaning the supply of new coins entering the market is reduced.
This topic is often debated amongst market analysts and participants alike. Some believe the halving will cause a significant increase in the price of Bitcoin, as the reduced inflation rate will lead to higher demand and a corresponding increase in value. Others argue that the halving is already priced into the market, and the event will have no effect on the price of the cryptocurrency.
What Does the Bitcoin White Paper Say About the ‘Halving’?
Interestingly, Bitcoin halving is not mentioned directly in the Bitcoin white paper, as the term, ‘halving’ is not used. However, the paper does discuss the limited supply of Bitcoin and the mechanisms in place to control the creation of new coins.
In particular, the white paper states that the capped number of bitcoins to be created is 21 million, and the rate at which new coins are created or mined will be halved approximately every four years. This is the mechanism that underlies the halving process.
But don’t take our word for it. In section 6 of the Bitcoin white paper, it is described as:
“The steady addition of a constant amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.”
And section 4 of the Bitcoin white paper says:
“The proof-of-work also solves the problem of determining representation in majority decision making.
If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it.”
Additionally:
“To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.”
Final Words: Should BTC Holders Worry About Bitcoin Halving?
Bitcoin halving is a pre-programmed event aimed at lowering inflation by reducing the amount of new bitcoins created. The impact on value can vary and is influenced by many factors.
As such, it is important to understand the halving as one of many factors that have an influence on the value of Bitcoin, while also taking into account other factors.
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