In what’s believed to have been a response to the 2008 financial crisis, Bitcoin creator Satoshi Nakamoto set out to prove that it was possible to have a global digital currency that could exist and function just as traditional currencies do – but without the headache of banking institutions, inflation, corruption, quantitative easing, and so on. What's more, a core design of Bitcoin is in its scarcity, as there is only a set amount of BTC available.
So Bitcoin halving: What is It?
A Bitcoin halving event is when the reward for mining Bitcoin is cut in half, and it takes place roughly every four years, which is approximately how long it takes to mine 210,000 blocks. This will continue until all 21 million Bitcoins have been released. Halvings are seen as a fortuitous event as they have historically increased the popularity and value of Bitcoin.
Key Bitcoin halving data:
- There is a maximum of 21 million Bitcoin to mine.
- Over 19 million BTC tokens have been mined.
- Bitcoin halving events reduce the reward for mining Bitcoin by 50%.
- Halvings occur every four years or 210,000 blocks.
- First halving took place on 28 November 2012.
- The next Bitcoin halving is estimated to happen this year in 2024.
- Final halving is predicted to take place in 2140.
Why is Bitcoin halving important?
- Controlled supply: Perhaps the most important designs within Bitcoin are its limited supply and the mechanism through which it issues new tokens. The halving event ensures that the limited supply of Bitcoin tokens are steadily introduced to the system, this maintains demand and which secures its value as an asset.
- Deflationary: The halving prevents needless inflation within the Bitcoin ecosystem. As the rate of new Bitcoins being released into the market is decreased by lowering block rewards. By controlling inflation the coin benefits from long-term stability and value.
- Market impact: Following a halving, Bitcoin usually experiences increased price volatility. Bitcoin supply is decreased which raises the value of unmined Bitcoin. With a lower block reward, miners are forced to upgrade their operations to remain profitable. This affects both miners and the broader crypto market overall.
- Network impact: Halving events can reduce the number of miners backing the network. Though it is good to reduce the number of unproductive miners, this reduction has implications for the network’s security.
A history of halvings
28 November 2012
Block number 210,000. New block reward = 25 BTC
After the first halving, the block reward was reduced from 50 to 25. There were no immediate changes in the market at the time. But at the beginning of 2013, the price of BTC experienced steady growth and continued to attract investors over the following years.
The price of BTC stood at approximately $12 at the beginning of the halving, which then became $42 after 100 days, and over $1,000 by the end of 2013.
9 July 2016
Block number 420,000. New block reward = 12.5 BTC
The second and perhaps most significant halving came after a time of unprecedented interest in Bitcoin and cryptocurrencies. The anticipation surrounding the result of this and future halving events became mainstream topics. This resulted in a sharp rise in price following the halving.
The price of BTC was around $662 at the beginning of the second halving. A hundred days later, this dropped to approximately $609 before surging to over $2,500 after one year, culminating in an astonishing bull run that saw BTC reach an all-time high of almost $20,000 in late 2017.
11 May 2020
Block number 630,000. New block reward = 6.25 BTC
The most recent halving was similar to the first in that there were no sudden jumps in price. BTC price growth had preceded the halving earlier that year, but due to the global pandemic caused by COVID-19, these price increases would begin to shrink drastically. It became evident that halvings, despite evidence to the contrary, were less of a factor when it came to price increases, which rely more heavily on the actual growth of demand versus a reduced supply.
Bitcoin stood tall at around $8,740. A hundred days later and the price reached over $11,000. After an incredible bull run through to the summer of May 2021, BTC was reaching highs of around $56,000. This followed a sharp market correction down to $28,000 before surging again months later up to $56,000 again in November prior to another longer-lasting market correction and subsequent bear market.
Bitcoin network basics
Mining
Mining is where computers are connected to the Bitcoin network to provide hashing power and become a part of the ecosystem by further decentralizing it, becoming a Bitcoin Node.
Miners are incentivized by earning transaction fees, as well as competing with each other to be the first to solve the next block, after which they receive freshly minted Bitcoin tokens, AKA the block reward. With each and every block solved, the block difficulty increases, requiring even more time and computing power to complete.
Bitcoin node
Any computer or device participating in the maintenance of the Bitcoin network is also known as a Bitcoin node. Whilst also mining, they each keep a complete copy of the blockchain which shows every past Bitcoin transaction.
Nodes come in different shapes and sizes:
- Full nodes store the entire blockchain, validate transactions, and participate on the network’s consensus process.
- Lightweight nodes rely on the accuracy of full nodes using limited data and are simply there to verify the validity of transactions.
- Pruned Bitcoin nodes discard older data to reduce the disk space requirements in order to run a full node. They can still keep an up-to-date record of blocks and transactions, as well as validating new transactions and bolster network security.
Proof-of-Work (PoW)
This is the technical name for ‘mining’. PoW is the consensus protocol that requires miners to validate transactions by solving an encrypted hexadecimal number. This method allows secure P2P transactions without a trusted middleman/third party.
Bitcoin halving countdown: When is the next Bitcoin halving?
The next Bitcoin halving is expected to take place somewhere this year in 2024.
The exact date is hard to determine because the average time it takes to mine the next block changes, which is also affected by fluctuating mining volumes.
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