In this article, we’ll be taking a look at everything you need to know about Bitcoin halving; what it is, how it works, its origin, effects, implications and more.
What is Bitcoin Halving?
Bitcoin halving is when the reward for mining Bitcoin transactions is cut in half. This brings about inflation in Bitcoin price by reducing the number of Bitcoin in circulation and increasing the demand for it.
Every four years, the amount of bitcoin awarded to miners is reduced by half, until all 21 million bitcoin have been virtually mined which is estimated to be around the year 2140.
How does Bitcoin Halving Work?
Bitcoins come into existence by way of a decentralized system, in which people known as miners use high-powered computer systems to solve cryptographic puzzles in order to verify and validate transactions on the Bitcoin ledger, known as the blockchain. In return, they receive payment in the form of newly created bitcoins.
For each block added, they receive a certain number of new bitcoins as a reward. The originator of Bitcoin programmed the block reward to be cut in half at regular intervals.
In early 2020, 12.5 new bitcoins were given out about every 10 minutes. In May, the reward was halved, reducing it to 6.25 new bitcoins every 10 minutes.
Approximately every four years, the bitcoin mining reward, also known as the “block reward” will continue to be halved. This will go on until all 21 million bitcoins are mined around the year 2140. At this point, bitcoin miners’ income will come entirely from transaction fees on the network, instead of earning newly minted Bitcoin directly.
What happens to Bitcoin prices during halving?
Historical data shows a correlation between Bitcoin halving and increases in the price of Bitcoin. Of course, price is affected not just by halvings, but by a whole host of factors. Here’s a summary of what happened around the first three halving events:
First halving: At the time of the first halving, in November 2012, the price of Bitcoin stood at about $11. Within a year, it rose a hundredfold.
Second halving: In July 2016, the Bitcoin network arrived at the milestone of 420,000 blocks, triggering a second halving. The price of Bitcoin fluctuated between $500 and $1,000 for a few months and ultimately rose to around $20,000 by December 2017.
Third halving: The third halving happened in May 2020, coinciding with another bull run for the cryptocurrency. At the time of this halving, Bitcoin traded at around $9,000. It climbed to around $30,000 by the end of the year.
The first Bitcoin halving occurred in 2012, and since then it has become an event that is anticipated every four years. As a Bitcoin investor, you need to be aware of this as they are said to have caused changes in BTC price over the years.