Unless you’ve been living under a rock this past decade, you might know about Bitcoin. The increased interest of people in digital assets has fueled the extraordinary rise of Bitcoin valuation, and even celebrity hype. But how do people get Bitcoin?
Bitcoins are earned by a process called crypto mining, in which, “miners” use their computers to solve hard mathematical equations. Every equation confirms the legitimacy of a transaction. Once confirmed, these transactions are added to a block and added to the chain of blocks popularly known as the Blockchain. Miners involved in the processing and adding of blocks are rewarded with a certain value of Bitcoin.
When it started out in 2009, the reward for adding one block to the chain was 50 Bitcoins. As of May 2020, miners were being rewarded 6.25 bitcoins per block. This reduction has occurred due to a process called Bitcoin Halving.
What Is Bitcoin Halving?
When Bitcoin was created, the creator set a limit on the number of tokens that could be mined. Therefore, only 21 million Bitcoin tokens can ever be in circulation. But if miners are mining round the clock, wouldn’t Bitcoin be mined soon?
This is where halving comes in. As per the algorithm, after every 210,000 blocks mined, or after every four years, the number of Bitcoin presented as a reward shall be halved. This is a synthetic form of inflation to make sure that the bitcoin circulation progresses till 2140. The significance of Bitcoin halving is understood by the fact that nearly 18.85 million bitcoins are already in circulation, as of October 2021. That leaves only 2.15 million bitcoins to be mined for the next 119 years.
Consequences of Bitcoin Halving
Apart from reducing the rate at which new tokens are generated, halving also impacts the crypto currency’s price to a great extent. With companies and governments accepting bitcoins as payment, demand is increasing and the supply is reducing every four years. This drives up the price of bitcoin.
For instance, before the first halving on November 28, 2012, bitcoin was priced at $12. One year later, on November 28, 2013, one bitcoin was priced at $1,217. On July 9, 2016, the second halving took place when bitcoin was going for $647. Its price soared to $19,800 by December 17, 2017. On May 11, 2020, when the most recent halving occurred, one bitcoin was going for $8,787. After a year on April 14, 2021, the price soared to $64,507.
This shows how much the bitcoin price increases after each halving. It acts as a catalyst for the crypto’s price. The next halving is predicted to occur in 2024, something that investors would be keeping a close eye on. On Mudrex, you can create auto trading strategies for bitcoins easily.
What Will Happen After The Last Bitcoin Halving?
While on paper it might look like the reward gets decreased after every halving, the nominal market value of the bitcoins will increase. While the market value of 50 bitcoins reward was just $600 in 2012, the current reward of 6.25 bitcoins will yield more than $3,50,000 for the miner. Thus, still giving a reason for miners to invest in cryptocurrency mining.
So, as the last bitcoin will be mined in 2140, as per current estimates, miners would no longer be rewarded with bitcoins. They would instead be paid in transaction fees for confirming new transactions. Being rewarded transaction fees instead of bitcoins could sound like less incentive for miners to add the remaining blocks, but as time progresses, the transaction fees would increase manifold.