Every four years, the Bitcoin network experiences an event known as “Halving”. The fourth bitcoin halving is scheduled for April 20, 2024. Why does this event risk driving bitcoin to new all-time highs?
What is a halving?
Bitcoin halving is a pre-programmed event that occurs approximately every four years or after the mining of 210,000 blocks.
During a halving, the reward for mining a new bitcoin block is divided by two.
When will the next halving take place?
The next bitcoin halving is expected to take place on April 20, 2024, just 19 days from now.
Bitcoin miners who successfully validate transactions are currently receiving 6.25 new bitcoins for each block mined.
Obstacles to halving?
Currently, there are almost 2000 blocks left before the next halving
This date is based on current estimates which change with each new block. Halving will bring the block reward back to 3,125 BTC.
What meaning?
Halving is a key element of Bitcoin's monetary policy, implemented to control the inflation rate, ensure the scarcity of crypto, and increase its value over time.
Each halving of the number of bitcoins reduces the number of new bitcoins produced per block.
It results a drop in supply.
Bitcoin was created as a deflationary currency similar to gold.
As it becomes scarcer and demand increases, the price is likely to increase, in accordance with the economics of supply and demand.
Halving the number of bitcoins will cap the total supply of bitcoins at 21 million pieces. Each bitcoin contains 100,000,000 satoshis.
This fixed offer is one of the fundamental characteristics that differentiate bitcoin from traditional fiat currencies, which may be subject to inflationary pressures due to central bank policies.
These scarcity-driven price dynamics have historically played a role in bitcoin's price appreciation after each halving event. It will be interesting to see how future halving events will have an impact on the price of bitcoin.
The history of bitcoin halving
Here is a summary of the latest halvings on Bitcoin where miners receive 50% fewer bitcoins as a reward for their work securing the protocol.
- 1st halving – November 28, 2012 – Reward reduced: 50 BTC to 25 BTC
- 2nd halving – July 9, 2016 – Reward reduced: 25 BTC to 12.5 BTC
- 3rd halving – May 11, 2020 – Reward drop: 12.5 BTC to 6.25 BTC
- 4th halving – April 19, 2024 – Reward down: 6.25 BTC to 3.125 BTC
Halving of 2012
Before the first halving on November 28, 2012, the block reward was set at 50 BTC. After the event, the reward was reduced to 25 BTC per block.
Cryptocurrency mining software Slush Pool was the first to mine the block using a Radeon HD 5800 miner.
Here are the details of the exact block where the reward went from 50 BTC to 25 BTC.
- Block number: 210,000
- Block reward: 25 BTC
- BTC created per day: 3,600 BTC
- BTC price before halving date: $12.35
- Bitcoin price 1 year later: $964
Halving of 2016
The second halving took place on July 9, 2016.
Before the halving the new amount of BTC per block was 25. It has been reduced to 12.5 BTC per block.
- Block number: 420,000
- Block reward: 12.5 BTC
- BTC created per day: 1,800 BTC
- BTC price before halving date: $663
- BTC price one year later: $2,500
Halving of 2020
The third halving event has occurred on May 11, 2020.
This latest halving reduced the block reward from 12.5 BTC to 6.25 BTC.
- Block number: 630,000
- Block reward: 6.25 BTC
- BTC created per day: 900 BTC
- BTC price before halving date: $8,500
- BTC price after: It reached $69,000 over the next few months.
The fourth halving is estimated at 840,000 based on a block time of approximately 10 minutes. This will bring the block reward back to 3,125 BTC.
- Expected date: April 20, 2024
- Block reward: 3,125 BTC
- BTC created per day: Estimated at 450 BTC
- Total new bitcoin supply: 656,250
When will the 21 million BTC be mined?
Given the current trajectory, the halving is likely to repeat itself every four years (approximately) until the block reward becomes zero. It’s hard to say what future pricing or reward trends will look like.
Bitcoin numbers and rewards decrease by half with each event. Based on the current bitcoin halving cycle and timeline, 100% of bitcoins will be mined around the year 2140.
What you need to know: 98% of the total bitcoin supply will be mined by 2032.
How does halving work?
Bitcoin halving reduces the rate at which new bitcoins are created and put into circulation.
The process is program in the Bitcoin protocol and controls the supply and demand of Bitcoin.
Here are some of the steps of a bitcoin halving:
- Reward for Bitcoin blocks: The Bitcoin network creates a reward for miners who validate transactions and add new blocks to the blockchain. The rewards for the blocks are main incentive for miners to secure the network.
- Halving Schedule: The block reward is halved approximately tevery 210,000 blocks or every four years. This interval helps control the creation of new bitcoins over time.
- Reduced block rewards: After each halving, miners receive 50% fewer bitcoins as a reward for their work.
- Rarity and supply: Reducing the rate of circulation of new bitcoins helps control inflation and ensures that the total supply of bitcoins gradually approaches the limit of 21 million coins.
What is the impact of halving on minors?
Minors use computing power to solve complex mathematical problems. This allows to secure the network.
When the block reward is halved, miners receive fewer bitcoins for their efforts.
This affects the profitability of mining operations, as miners must anticipate reduced block rewards and adapt their strategies accordingly.
What is the impact on the entire crypto market?
Bitcoin halving events often generate a lot of interest and speculation in the cryptocurrency market. Anticipation of a decline in supply and a potential increase in demand can contribute to price volatility.
During previous halvings, The price of bitcoin saw both surges before the halving and price increases in the months and years following the event.
However, the price of bitcoin is influenced by a multitude of different factors and is not solely determined by halvings.
Does halving always increase the price of bitcoin?
If halving is often associated with positive movements in the price of bitcoin, it does not guarantee an immediate or automatic increase in price. Each halving results in smaller increases in the circulating supply of bitcoins.
Supply shocks can potentially impact the pattern and magnitude of bitcoin price fluctuations before and after each halving. However, the proportion of new supply relative to existing supply has declined due to the reduction in the magnitude of these shocks from one halving event to the next.
Over time, the influence of supply shocks on bitcoin price increases can be expected to become significantly less pronounced. Therefore, We should expect smaller swings in the bitcoin price between the trough and peak that result from halving events.
The future remains unpredictable
Price peaks will be smaller in magnitude, with the corresponding supply shocks gradually losing their impact.
Various factors, including market sentiment, overall demand for bitcoin, investor speculation, and external events, influence the market's reaction to the halving.
Although historical trends suggest that halving has contributed to price appreciation over the long term, short-term price movements can be unpredictable and subject to market dynamics.
The Bitcoin halving is a major event that occurs approximately every 4 years and has a significant impact on the supply of new bitcoins in circulation. By halving mining rewards, halving controls Bitcoin's inflation rate and ensures its long-term scarcity, with the total supply limited to 21 million coins. The next halving, scheduled for April 20, 2024, will increase the mining reward from 6.25 to 3.125 BTC per block. Its exact impact on the price will be monitored, because it will also depend on other market factors. One thing is certain: this fundamental mechanism will continue to regulate the supply of Bitcoin until the last Bitcoin is mined around 2140.
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