Bitcoin has its aspects and its finiteness is one of them. The cap of it is 21 million coins and the majority of them have already been mined. Bitcoin automatically reduces the number of bitcoins created with every new block validated in a process called halving. It cuts in half not only the supply of new bitcoins but the reward that miners earn.
With each halving event inflation is being reduced and the price of the coin goes up. As Bitcoin is finite, the impact of halving will become unnecessary as the block reward approaches zero.
In this article we will find out the meaning of halving in cryptocurrency, its reasons and impact on the market.
Bitcoin halving explained
The meaning of halving in crypto is the event when the reward for Bitcoin mining is cut in half. The event takes place every 210,000 blocks mined or about every four years.
This rule is written into the algorithm to counteract inflation. The system itself mimics the finite reserves of gold. The slower pace of Bitcoin issuance in theory should increase the price of the coin. It will continue like this until around 2140 when the limit of coins that could be created will be reached. Then the only reward for miners will be the fee for the transaction validated.
When was the first Bitcoin halving?
For the first time in history it occurred in November 2012. The next took place in July 2016, and the most recent one is dated May 2020.
When Bitcoin was released, the reward was 50 BTC per block in 2009. The amount of the reward halves each four years and with the first halving the reward was dropped to 25 BTC per block. The last halving will happen in 2140 when the last bitcoin will be mined. There will be 21 million Bitcoin total and as no more coins will be created, miners will only be paid with transaction fees.
This may make many miners turn away from BTC and less miners means less secure network. Higher transaction fees are unavoidable in this case.
When is the next Bitcoin halving?
The algorithm is made this way that nobody knows when the next halving will occur, but the anticipated date is May 2024. Whereas Bitcoin is somewhat predictable, it still creates fuss in a community as the price will end up significantly higher a few months after. Many factors affect the price of this coin but the halving makes it go bullish every time.
Here is some kind of a “crypto halving calendar” for you to mark these days in your calendar:
- 27 March 2024
Blocks: 840,000
New Block Reward: 3.125
- 2028
Blocks: 1,050,000
New Block Reward: 1.5625
- 2032
Blocks: 1,260,000
New Block Reward: 0.7812
- 2036
Blocks: 1,470,000
New Block Reward: 0.3906
- 2040
Blocks: 1,680,000
New Block Reward: 0.1953
- 2044
Blocks: 1,890,000
New Block Reward: 0.09765
However, not a long ago experts were concerned about “The Super Halving” – the event that could have happened if bitcoins were mined sooner than in 2140. 2021 was the exact year predicted to be the year of the cryptocurrency super halving. As you can see, nothing like that ever happened in real life.
Why Halvings Occur More Often Than Every Four Years?
The algorithm which crypto halving uses is set to find a new block every 10 minutes and if more miners join, the time will decrease even more. As the network grows, now it takes less than 10 minutes to find a block (about 9.5 minutes).
What Does This Change?
There is a theory on what crypto halving leads to:
- The reward is halved
- Inflation is reduced
- Lower supply available
- Higher demand
- Higher price
- Smaller reward for miners
If a halving doesn’t increase the price of Bitcoin, miners will have no incentive and the transaction reward will be smaller, so the value of Bitcoin is low.
For this to be avoided the difficulty of mining a transaction is being changed. If the reward is halved but the price of bitcoin is not increased, the difficulty of mining decreases to keep incentive for miners. The quantity of bitcoins is smaller but the difficulty of mining is reduced. The method has proved its effectiveness at least twice.
However, the halving is typically surrounded by immense speculation, hype, and volatility, and how the market will react to these events is unpredictable.
The halving usually goes along with speculations, severe volatility and unpredictable behavior of the market.
What Effects Does a Bitcoin Halving Have?
A major event which Bitcoin halving has a significant impact on the market. Here is a short list of main effects:
- high prices for cryptocurrency
- trading activity increases
- fewer rewards for miners
- the number of miners decreases
- less secure network
- the inflation is reduced
Closing Thoughts
The crypto halving is supposed to reduce the inflation of Bitcoin synthetically by cutting the reward for miners. By 2140 there won’t be any bitcoins to mine anymore and the only reward for miners will remain the commission fee which will drastically increase as many miners will stop validating blocks as it is not profitable. The impact of halving is usually pretty predictable but anyway we can’t be completely sure of it every time.
