Everything You Need to Know about Bitcoin Halving

2021/04/09 13:21:52

In the previous article, you’ve got to know what Bitcoin is. However, whether you are a beginner or an expert, probably you’ve also come across the term- Bitcoin halving. Bitcoin halving, is an approximately quadrennial event, without a doubt, very instrumental in bitcoin network progression. Looking at the several alterations and adjustments made to bitcoin codes since launch in 2009 – and the evolution of the industry and ecosystem surrounding it, one thing remains constant; the issuance cycle and the decided and predetermined supply.

The concept of bitcoin halving perhaps symbolizes both the technical progression and the philosophical standard of bitcoin. It is also a fun event, with past occurrences inspiring halving celebrations and parties for those engaging in cryptocurrency halving countdown before it officially kicks in.

What is Bitcoin Halving?

On May 11, 2020, the amount of bitcoin circulating per ten minutes - otherwise called block rewards - reduced by half, dropping from 12.5 to 6.25. This phenomenon is what simply defines bitcoin halving. Here is a milestone that almost every crypto-enthusiast saw coming because it had happened twice before the date mentioned above. The first occurrence was in 2012 while the next occurred in 2016.

New bitcoins circulate as block rewards created by miners who utilize some complex and specialized equipment to mine or earn them. After approximately four years or every 210,000 blocks, the entire amount of BTC a miner can potentially earn reduces by half. Back in 2009, the block reward of BTC started at 50. Subsequently, after two halvings, the number of BTC dispensed every ten minutes is now 12.5. The entire process is projected to end in 2140 when miners have mined a total of 21 million coins.

How Does Bitcoin Halving Work?

For every mined 210,000 blocks, mining rewards per block drop by half. In the early BTC days, the reward was 50BTC/Block. As people mine more bitcoin and more of it circulates, by 2012, miners mined the first set of 210,000 blocks, reducing the reward to 25 BTC.

Subsequently, by 2016, they mined the second set of 210,000 blocks, dropping the reward by half – 12.5 BTC. The most recent bitcoin halving, completing the third 210,000 blocks set, which dropped the reward to 6.25/block occurred on May 11, 2020.

From the bitcoin cryptocurrency halving history, we can infer that it takes approximately four years to mine 210,000 blocks.

Why Does it Matter?

Individuals engaged in bitcoin trading must be aware of this systemic character - halving - since a significant amount of turbulence often accompanies it. The primary idea behind creating the halving technique was the economic significance of bitcoin. It functions more similarly to a commodity, such as diamond than a fiat currency like Yen. Theoretically, central banks of various countries could always put more units of a fiat currency into circulation. However, this action will ultimately decrease its purchasing power.

By controlling its supply with bitcoin halving, BTC creators aim to ensure that this digital asset will remain valuable. A part of this control strategy is capping its final supply value at 21 million while providing a systematic and calculated decline in supply growth rate.

As for this event's impact on miners, each of these incidents drops the amount a miner earns per mined block. Excluding transaction fees, a halving denotes a 50% drop in compensation for miners. However, miners should understand that as technological innovations progress, processing power is likely to become less expensive, which could compensate for decreased mining rewards.

Relationship between Bitcoin's Price and Halving

Bitcoin halving usually grabs several crypto enthusiasts' attention because they believe it will ultimately increase the price. However, the truth is no one really knows what the outcome will be.

Bitcoin has experienced three halvings so far, which we can examine.

The 2012 event of bitcoin halving gave the first idea of the market response to Nakamoto's unusual supply plan. Nakamoto, as we all know, is the pseudonymous developer of bitcoin. Before then, no one in the bitcoin community understands how an unforeseen reward drop will influence the overall network. However, as it turned out, the price started rising shortly after the event.

The second halving occurrence was in 2016, and it was a highly anticipated one with several platforms organizing events and cryptocurrency halving countdown. With the trend of the first event, people started predicting and speculating the effects of halving on price. The second halving took place in July 2016, and on that day, as per the CoinMama bitcoin halving chart, the price dropped by 10%, which equates to roughly 610 USD. Right after the drop, it went back to where it was before. With the trend taken by the second version, there was little evidence that a rapid reduction in the mining rate had a long-lived influence on price.

Although the impact on bitcoin price was not immediate, the crypto-market did experience a gradual growth following the second bitcoin halving. Some stakeholders in the crypto community argue that this growth experienced was a delayed outcome of halving. They supported this proposition with a theory that when the bitcoin supply decreases, the demand remains constant, and the price will eventually rise. This theory has proven to be accurate because it applies to the first second and the third halving?

Other stakeholders argue that considering the halving schedule's predictability, a change in halving rate may not impact the price in any way. Bitcoin traders have always known that there will be a point whereby the block reward drops, giving them enough time to prepare. This theory also seems valid as if enough people know about the halving event before time; they might acquire more bitcoin in anticipation, which may push the price up before the event, in contrast to after. Here is the definition of the commonly used term, 'priced in.'

In essence, judging by the bitcoin halving data acquired from CoinDesk, the bitcoin price history suggests a direct correlation between price and halving. This implies that halving may increase the price. However, it is essential to note that halving is not the only factor influencing the price; it also depends on several others.

When Is the Next Bitcoin Halving?

To answer the question, "when is the next bitcoin halving?" there are some things you should know. Days of "easy mining" have passed: of the 21 million bitcoins that can ever exist, BTC miners have mined well over 18 million, which amounts to roughly 89%, and each of them is in circulation. Daily, approximately 900 new BTCs enter the digital circulation. The advancement of technological innovations and computing powers have resulted in faster mining rates, so the number of daily bitcoins mined might even be higher than that.

As halving occurs over time, the bitcoin supply growth rate will keep declining until it reaches the 21 million mark; several predictions propose that the mining of the last bitcoin fraction will take place in 2140.

Bearing in mind that bitcoin mining occurs roughly every 10 minutes, the projection for the next bitcoin halving is expected on March 13, 2024. On that date, the miner's reward will decline to 3.125 BTC. So, investors and miners would do well to begin their preparation now.

Bitcoin Halving and the Future of Mining

In the short term, at least, and possibly over the following years, it seems like halving may leave a negative impact on BTC mining. As per the CEO of RRMine, Tsou Steve, halving in 2012, 2016, 2020, and beyond have and will keep leaving significant impacts on mining. It will force miners with low efficiency to pause and restrategize their operations and transform the digital market into a racetrack that only miners with more advanced machines will stay afloat. Previous and upcoming halving have and may force small-scale operators out of the market. The bottom line is, to secure your future in bitcoin mining, you must equip yourself with the most sophisticated machines with higher TH/s.

In the words of RockX CEO Alex Lam, he agrees with the idea. He submits that the upcoming bitcoin halving may significantly decline mining profitability, although for the short term.

Conclusion: Is BTC Halving a Good or Bad Thing?

As we've understood from the points we discussed above on bitcoin halving, it had different impacts on miners, traders, and market price – each having its fair share of upsides and downsides. Similar to other valuable commodities and assets, supply and demand are the main determinants of bitcoin price. However, it may not be the most enticing for miners who earn a declining amount of rewards quadrennially compared to the 50 BTC reward they were making before the halving era.

However, after over a decade of its existence, bitcoin's rising adoption and popularity will undoubtedly push the price higher. So, is having a bad event or a good one? Well, we'll leave that for you to answer.