What a year for Bitcoin so far. The legendary cryptocurrency is now up 16%+ since the start of 2024 and up 132%+ over the last 12 months.
Wild!
And while there’s almost always interesting stuff going on with Bitcoin and its ecosystem, one particularly interesting future event is the next “bitcoin halving.”
In this article, we’ll explore what bitcoin halving is and why it matters.
What is Bitcoin Halving?
Bitcoin halving refers to a process built into the Bitcoin network’s DNA that reduces the reward bitcoin miners receive for mining new blocks (also known as processing transactions). A miner’s reward gets reduced by half once a halving event occurs.
Let’s take a quick step back and talk briefly about mining. In order for a bitcoin transaction to take place, a “miner” must process it. Each time a miner processes a transaction, they are given a reward by the network. This reward has always been bitcoin, but the amount has not always been the same. Why? This is where bitcoin halving comes in.
The founder(s) of Bitcoin wanted to create a digital currency that would have scarcity. This was to counter a lack of scarcity in fiat currency, like the American Dollar, which can – and is – printed at will. The finite supply of bitcoin helps create value and avoids several negative traits of fiat currency, like inflation.
The bitcoin halving process was developed to ensure scarcity and that a controlled amount of bitcoins would be issued in the world (the supply can never exceed 21 million). All of this was baked right into the network’s programming!
Here’s a great explanation from Bitcoin.org:
“Bitcoins are created at a decreasing and predictable rate. The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence.” – Bitcoin.org
A bitcoin halving event occurs roughly every four years (or after 210,000 blocks are mined). And there have been three halving events so far!
- November 28, 2012
- July 9, 2016
- May 11, 2020
Each halving event resulted in a reward for miners that was half of what it was previously. Rewards for mining started out at 50 BTC. In 2012, the first bitcoin halving event occurred and the reward was reduced from 50 to 25, and to then 12.5 in 2016, and to 6.25 in 2020. The reward will be reduced to 3.125 BTC in 2024.
Does Bitcoin Halving Impact Bitcoin’s Price?
Now that we’ve established a general overview of bitcoin halving, a natural question you may have is, what does it matter?
The answer is quite a lot, actually.
For one, as I wrote earlier, the halving events help ensure the scarcity and supply of the cryptocurrency. Additionally, halving events typically have a positive effect on the price of BTC.
According to an article by CoinDesk, bitcoin halving events typically “generate optimism among crypto investors” which affects the price.
The article goes on to say the increased positivity is likely due to halving events’ highlighting the scarcity of bitcoin (and the mechanics of the system working as intended) and also due to attention the halving events might garner from people less involved in the crypto space. It’s believed that these factors contribute to the typical increase in demand for BTC and its price.
Here’s a great chart from Bitbo.io that highlights each halving event so far.
Not a bad chart right there. It will be super interesting to see how BTC’s price behaves after this next halving event!
Conclusion
In summary, the bitcoin halving process is an event that takes place every four years (or when every 210,000 bitcoins are mined). Bitcoin has already experienced three halving events, with the next one scheduled for this year.
Bitcoin halving helps ensure scarcity of the cryptocurrency, confirms that the network is continuing to operate like it was intended to, typically generates positive sentiment amongst crypto investors, and can often attract the attention of people new to Bitcoin.
