What Is Bitcoin Halving? How Does It Affect Bitcoin Price?
About every four years, the amount of new bitcoins created per block is halved. This scarcity measure limits supply and can push the BTC price up.
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 September 2023, miners are rewarded 6.25 bitcoins per block mined.
Get all the details on the biggest cryptocurrency by market cap in our 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 every 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 centralised entity. Miners are incentivised 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 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.
- 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 not affect the cryptocurrency’s price.
Historically, halvings have generally been preceded by bear markets and followed by bull markets.
Ultimately, the price of Bitcoin is determined by a variety of factors. These include market demand and sentiment, plus regulatory developments. It is difficult to predict how the halving will impact its value.
Learn about the Four Phases of the Crypto Market Cycle.
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 bitcoins 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.
In section 6 of the Bitcoin white paper, the philosophy behind the idea is described:
“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 explains the Proof of Work (PoW) mechanism:
“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.”
“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 may have an influence on the value of Bitcoin, while also taking into account other factors.
How does Bitcoin work behind the scenes? Find out in this deep dive on the technical details of Bitcoin.
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Frequently Asked Questions
Unlike traditional currencies, cryptocurrencies are not backed by a physical commodity or government, and their value is determined by market demand and supply. Cryptocurrencies can be used to buy goods and services, transfer funds, and trade in markets. Popular cryptocurrencies include Bitcoin, Ethereum, Litecoin, Ripple, and Cronos.
Many cryptocurrencies, like Bitcoin, are created through a process called mining, which involves solving complex mathematical equations to validate and record transactions on a blockchain. This mechanism is also called Proof of Work (PoW). Another consensus mechanism that has increased in popularity — as it is more energy efficient — is Proof of Stake (PoS). Instead of mining, PoS relies on network participants validating transactions. Ethereum, the second-largest cryptocurrency, uses this consensus mechanism.
Unlike traditional fiat currency, which is controlled by central banks and governments, Bitcoin operates independently of any central authority. Transactions are verified and recorded on the blockchain, which is a distributed ledger that maintains a permanent and transparent record of all transactions.
Bitcoin can be bought, sold, and exchanged on various cryptocurrency exchanges, and it can be used to purchase goods and services from merchants that accept Bitcoin as a form of payment. The supply of bitcoins is limited to 21 million units, and new bitcoins are created through mining, which involves using specialized computer hardware to solve complex mathematical equations.
Bitcoin is known for its high volatility, and its value can fluctuate rapidly in response to market conditions, news events, and other factors. Many traders, including institutional investors, see Bitcoin as a store of value and a way to participate in the growing cryptocurrency ecosystem.
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- Choose a reputable cryptocurrency platform that supports Bitcoin trading. Popular options include the Crypto.com App and the Crypto.com Exchange.
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- Choose a cryptocurrency exchange that supports trading. A popular option is the Crypto.com Exchange.
- Create an account on the chosen platform and perform ID verification, known as KYC (‘Know Your Customer’).
- Deposit funds into the newly created account using a supported payment method. The Crypto.com Exchange supports bank transfers and credit/debit cards.
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It is crucial to note that trading cryptocurrency carries risk, and it is important to trade only what you can afford to lose.
- Mining: Cryptocurrency mining involves using specialized computer hardware to solve complex mathematical equations that validate transactions on a blockchain network. Successful miners are rewarded with newly minted cryptocurrency for their efforts.
- Staking/Lockups: Staking and lockups involve holding or locking up a certain amount of cryptocurrency in a wallet or on a platform to support the operations of the blockchain network. Stakers are rewarded with new cryptocurrency as a form of interest for their support.
- Trading: Trading cryptocurrency involves buying and selling cryptocurrencies on exchanges or other trading platforms. Those who have a good understanding of market trends and are able to make informed trading decisions can earn profits through trading.
- Airdrops: Airdrops are free distributions of cryptocurrency to users who meet certain criteria or participate in promotional activities.
- Crypto Projects: Some blockchain projects offer rewards or bounties for users who contribute to their development or community. This can include activities like bug bounties, testing, or content creation.
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