What is bitcoin halving?
Bitcoin halving has been very crucial to the development of the number one cryptocurrency by market capitalization over the years. In 2009, the genesis block of bitcoin was mined on the blockchain and the rewards of mining has been steadily reducing since then.
Mining bitcoin has provided a way for it to be created and distributed randomly over the years. Bitcoin halving is of a major concern to miners and the general users of the cryptocurrency alike. It is a concept that reduces the amount bitcoin mined after every block is created after certain periods.
Bitcoin miners can be compared to a central bank that prints or issues a country’s legal tender.
Since bitcoin mining is power dependent; the incentives in the form of mining rewards are meant to motivate people (miners) to dedicate their computer processing power to the network. This keeps the bitcoin or blockchain network up and running.
Mining rewards come in the form of the same cryptocurrency and what bitcoin halving seeks to do is to cut the rewards in half. This happens after the mining of every 210, 000 blocks; this translates roughly to every four years.
Bitcoin halving divides mining rewards by two.
A bitcoin miner from 2009 till four years later received 50 BTC for every block mined. Halving events since November 2012 have strategically reduced the bitcoins rewards received by miners. This idea is supposed to cause BTC to increase in value over time, more on that later.
For the latter part of 2012, miners received 25 BTC for every block mined. The next bitcoin halving event occurred in July 2016 and this reduced the rewards to 12.5 BTC for every block mined. In May 2020, the rewards reduced to 6.25 BTC.
The next halving event will occur somewhere in 2024 and that will cut 6.25 BTC into two to 3.125 BTC. Four years after, somewhere in 2028, the rewards would be halved to 1.5625 BTC and this will go on until the last block is mined around 2140.
The months for the halving events are not stable because the time for every 210, 000 blocks mined is in a rough four year estimate. After the mining of the last block in the projected 2140, miners would still be compensated in the form of transaction fees.
Why bitcoin halving?
The total supply of bitcoin is 21 million; this means that, there will only ever be 21 million bitcoins in existence, nothing more, nothing less. As of November 2021, there are 18,881,000 BTC in circulation. This leaves over 2.2 million BTC on the table to be mined.
The action of miners causes new bitcoins to be issued every 10 minutes. Currently 6.25 bitcoins are issued per block mined. This as already mentioned will reduce after every 210 000 blocks mined. It creates a sense of scarcity.
As more blocks are mined over time, more halving events will drop the bitcoins issued after every 10 minutes and there will be less for everyone. Nothing creates an idea of scarcity than this and if basic economics is anything to go by, scarcity causes an increase in value.
Banks vs Bitcoin.
Central banks have no cap on the amount of the money they print; there is mostly an endless supply of mainstream currency. If there was an unlimited supply of bitcoin, it would have had little value and be susceptible to inflation like fiat currency.
Money printing institutions however try to tackle fiat currency issues to the best of their ability. They do this by printing it at a balanced level. This means that they do not print too little to make it so hard to get and they do not print too much to make it so easy to get. However, fiat has an unlimited supply.
Bitcoin has its value mainly in the technology behind it and the limited nature of its supply. Bitcoin halving stabilizes the value by making it harder to get through releasing new coins steadily.
Gold is one of the valuable metals in the world and its value can be attached to its supply. It has a limited supply and this means, the more gold mined, the less gold left. With more gold mined, miners have to go deeper in the earth and also invest in better technology to get new gold.
Extraction will get tougher and tougher until the last gold is mined. Gold as documented dates back to more than 5000 years and it is still valuable in this day. This is why some crypto enthusiasts refer to bitcoin as the digital gold.
How the previous bitcoin halving events impacted the price of BTC.
Mining has released bitcoins into the system steadily whereas the cryptocurrency has gained popularity over the years of its existence. Many computers are mining bitcoin now and it has increased mining difficulty. This is evident in the high hashrate.
The limited supply and the increased demand has been beneficial to its increase in price.
The first halving event occurred on 28th November 2012. In that period, bitcoin was trading under $30. A year later in 2013, it had made a massive move to hit a record high at $1200. This was over a 3000% increase in just a year.
On 7th July 2016, the second bitcoin halving event occurred. Then, it had lost over 50% of its value from the 2013 high and was trading around $600. A year after in 2017, bitcoin had moved from that price to hit a high of $20,000.
That was when many others heard about this cryptocurrency for the first time since it was making massive waves in the mainstream and online media. It was not all rosy though as it fell from the highs of $20,000 to under $12,000 in December of 2017.
The last halving as of this writing was on the 11th of May 2020. By then, bitcoin was trading below 10, 000 but a year later in 2021; it has recorded double highs above the 60, 000 mark. It is currently trading at 56, 000 at the time of this writing.
It has not been all rosy though. Bitcoin has had all time highs after the halving events consistently but it has crashed severally. This post details the historic crashes bitcoin has been through over the years. The takeaway is that the cryptocurrency has made historic recoveries from all the crashes.
Currently, we have lived through three bitcoin halving events and their effect on the price of BTC has been massive. A year after every halving, bitcoin hit all-time highs consistently. If this trend goes on the cryptocurrency has more room for an upward trend.
Bitcoin is programmed to be valuable in the long term; halving is just one of the concepts that make it so.