What is Bitcoin halving?

One of the fundamental things about Bitcoin is that its total coin supply is finite and immutable. At some point, albeit in the very distant future, the last Bitcoin will be minted, and no other coins will be made available. When that time comes, the total number of Bitcoins in circulation will be around 21 million. This is one of the things that makes Bitcoin different, not only from many other cryptocurrencies, but also from conventional fiat currencies.

As things stand, around 19 million Bitcoins are already in circulation, leaving just 2 million left to be created, but it is estimated that the final Bitcoin won’t be minted until around 2140. That’s because every 210,000 blocks, or every four years at the current mining rate, the Bitcoin protocol automatically reduces the number of new coins issued by half. This is what is known as Bitcoin halving.

Every time Bitcoin transactions are validated and processed and a new block is added to the blockchain, the miner who is responsible for carrying out the work receives 6.25 new Bitcoins (BTC) as a reward. A new block of transactions is added roughly every ten minutes, which means around 37.5 new BTC are minted every hour, or around 328,500 every year.

But there’s a catch. Those rates are only true until the next Bitcoin halving, which occurs every 210,000 blocks, or every four years at the current mining rate, at which point the reward for validating transactions is cut in half. This helps ensure the supply never exceeds 21 million BTC. It also counteracts inflation, which is one of the biggest problems we face with conventional currencies.

The history of Bitcoin halving

Bitcoin halving has been a part of the Bitcoin protocol since the cryptocurrency made its official debut in 2009. Back then, the reward for validating a block of transactions and adding it to the chain was 50 BTC. The first halving happened in 2012, at which point the reward was cut to 25 BTC. A second halving in 2016 cut the reward to 12.5 BTC.

The third and most recent Bitcoin halving took place in May 2020, at which point the reward was reduced to 6.25 BTC. The next will happen in 2024 and will cut the reward to 3.125 BTC. This process will continue until the 32nd and final halving takes place in 2140. So, why was Bitcoin designed this way?

“Satoshi Nakamoto,” the person or group who founded Bitcoin, realized that one of the biggest problems with conventional currencies was inflation, which causes the value of a conventional currency like the U.S. dollar or the Euro to fall over time, which in turn causes the price of goods to increase. One of the reasons for this, among many others, is that more and more cash is produced by governments all the time.

While that may be the case for Bitcoin now, we’ve already established that there is a finite supply of BTC, which will never exceed 21 million coins. This helps maintain BTC’s value and reduce inflation. As things stand in late August 2022, BTC’s current inflation rate is just 1.76%, whereas the inflation rate of the U.S. dollar is 8.75%. The Euro is at 8.9%.

As we’ve seen since Bitcoin’s inception, an incredibly low inflation rate means that the value of Bitcoin has risen dramatically over time. So, while the reward for miners will continue to reduce every four years, the actual value of that reward is likely to remain incredibly high.

Why is Bitcoin halving important?

When the first Bitcoin halving took place in 2012, the price of Bitcoin soared from less than $16 per BTC to over $1,000. After the second halving in 2016, the price of BTC jumped from $700 to almost $20,000. A single BTC is currently worth well over that, and at its peak last year, the value of a single BTC surpassed $65,000 for the first time. Some experts predict the price of BTC could hit $100,000 by the end of this year.

One of the reasons for this sharp rise in value, as we’ve touched upon above, is that halving makes the supply of Bitcoin increasingly scarce, which in turn raises the value of available coins. It’s important to note, however, that these rises typically happen over time — not immediately after a halving — and when a new all-time high occurs, BTC’s value tends to drop again. However, the value usually remains higher than it was before the halving.

Based on what we know about Bitcoin up to this point, then, it’s likely BTC’s value will continue to increase beyond 2140. It will eventually reach its final all-time high, and then its value will drop until it stabilizes. Assuming there are still uses for Bitcoin by then — and many experts predict there will be — BTC’s value should remain steady long after 2140.

Now that cryptocurrency traders are well aware of how Bitcoin’s protocol operates, investors usually buy more BTC before or soon after a halving takes place with the anticipation that their investment will soon (it usually takes between six and 18 months) be worth a lot more.

Of course, there’s also a very real chance of a BTC “crash” — which is when the coin’s value fall substantially — since Bitcoin is just as volatile as other cryptocurrencies. One of the biggest and most notable Bitcoin crashes to date occurred in 2017, when BTC’s value dropped 83% from over $20,000 to below $12,000. Other crashes occurred in 2020 during the pandemic, and again in 2021 when BTC fell 53% from its peak of $64,000.

It’s likely other crashes will happen in the future, but so far, Bitcoin’s value has always recovered — and tends to end up being worth a lot more than its previous all-time high eventually. But it’s hard to tell what the future holds for Bitcoin and other cryptocurrencies, so a rise in value over time certainly isn’t a guarantee.

Bitcoin halving timeline

The table below shows the current timeline of Bitcoin halving:

References

• Apa itu Bitcoin Halving?
• What is a Bitcoin halving?
• Bitcoin Halving
• Bitcoin Halving Countdown
• 2024 Bitcoin Halving: What The Experts Predict
• What is it, and when will the halving of Ethereum take place?
• The ultimate timeline of the past Bitcoin Halvings