Glossary

What Is 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 be in circulation. If miners are mining round the clock, wouldn’t Bitcoin be mined soon?

As per the algorithm, after every 210,000 blocks mined, that is, every four years, the number of Bitcoin presented as a reward shall be halved. This is a synthetic form of inflation to ensure that 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.

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?

Bitcoin halving is a phenomenon that occurs every 210,000 blocks mined, or after every four years, where the number of Bitcoins presented as rewards for mining shall be halved. This is a synthetic form of inflation to make sure that the Bitcoin circulation progresses till 2140.

When Bitcoin was created, the creator set a limit on the number of tokens that could be mined. Therefore, only 21 million Bitcoins 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.

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.

FAQs

1. How Often Is Bitcoin Halved?

Bitcoin halving refers to the event when the reward for Bitcoin mining is cut in half. The event takes place after every 210,000 blocks mined, or roughly after every four years. The last Bitcoin halving occurred in 2020, when the reward was cut in half and brought to 6.25 BTC. The next halving is expected to take place in 2024, when the reward would be halved to 3.12 BTC.

2. Will Bitcoin Halving Increase Price?

Bitcoin halving usually brings an uptrend in the price of Bitcoin. This is because when the mining reward is cut in half, the rate at which new Bitcoins are mined reduces by 50% since the price of Bitcoin is dependent on the demand-supply effect, when the supply of BTC decreases, while the demand remains constant or increases, there is a rise in price.

3. What Year Is the Next Bitcoin Halving?

Bitcoin halving is an event that takes place roughly every four years. The last halving took place in 2020 when the reward of 12.5 BTC was cut down to 6.25 BTC. The next halving is expected to take place in 2024, when the reward would be cut down to 3.125 BTC.

4. Does ETH Have Halving?

Halving in Bitcoin is done to restrict the supply of new Bitcoins in the market. Ethereum does this by burning a certain amount of ETH rather than by halving the rewards. ETH burning was introduced in 2021.

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