Bitcoin (BTC): What Is Halving and Why Does It Matter?

The halving is a periodic event that occurs every four years on the Bitcoin blockchain. It consists of halving the rewards given to Bitcoin miners, who are responsible for the mining of bitcoins. The halving is a highly anticipated event in the crypto universe, but what exactly does it entail? How important is it? And when will the next halving take place?

What is Bitcoin Halving?

The term “halving” is an English word that literally means halving. That’s exactly the definition of Bitcoin halving, which consists of reducing by half the rewards in BTC awarded to miners during the mining of each block. By reducing the amount of BTC created over time, it helps keep inflation under control.

The term “halving” is specifically designed for Bitcoin, but it can apply to other cryptocurrencies using Proof-of-Work (PoW). Indeed, other crypto-assets can be mined and thus serve as rewards for miners. But the system may not necessarily be the same as Bitcoin. Some cryptocurrencies, for example, plan a reduction of miner rewards by 10% per year.

Why a halving every four years?

Bitcoin halving occurs every 210,000 blocks. On average, a new block is created approximately every ten minutes, so the halving occurs about every 4 years. The phenomenon is therefore periodic and automatic, as the halving is coded in the crypto-asset’s source code. Rewards are automatically halved when the halving occurs.

Here’s a look at the halvings Bitcoin has experienced:

• 1st halving: November 28, 2012;
• 2nd halving: July 9, 2016;
• 3rd halving: May 11, 2020.

In reality, there is no known reason for choosing four years that might have been explained by Satoshi Nakamoto. While some believe it is simply an arbitrary decision by the creator, others argue it is a well-thought-out choice.

Indeed, the fact that the halving occurs every four years makes it a highly publicized event that creates speculative bubbles on Bitcoin regularly. It also allows miners to gradually adapt to changes and improvements regarding Bitcoin.

How does Bitcoin mining work?

The maximum number of bitcoins that will be in circulation is set at 21 million. As of January 26, 2023, there were 19.27 million BTC in circulation. But when mining new blocks, new BTC are created approximately every ten minutes. These created BTC are then distributed to miners in exchange for the work they have done to secure the blockchain.

Miners are none other than machines that solve complex calculations to validate transactions on the blockchain. Only blockchains using the Proof-of-Work mechanism allow mining. But is generating bitcoins profitable? Since it has a cost, it requires specific machines and a high consumption of electricity.

That’s why miners are paid in BTC. Additionally, there are free bitcoin mining sites that allow users to generate bitcoin for free, without having to invest in expensive specialized equipment.

When will the last bitcoin be mined?

It is estimated that the last Bitcoin will be mined around 2140. At that time, it will reach the maximum number of 21 million digital coins, but the exact date remains uncertain. In fact, the Bitcoin code was programmed to issue only 21 million BTC and not one more.

Contrary to what one might think, mining the last Bitcoin will not put an end to the network’s operation for miners. They will probably continue to receive compensation through the fees of transactions validated on the network.

When is the next mining reward division (Halving)?

It is estimated that the next division of the mining reward will probably occur between March and June 2024. The reward received by miners will then decrease from 6.25 bitcoins to 3.125 bitcoins.

Here is the summary of the number of BTC generated for each block, which corresponds to the halving:

• 2009: 50 BTC, or 10.5 million bitcoins from 2009 to 2012;
• 2012: 25 BTC, or 5.25 million bitcoins from 2012 to 2016;
• 2016: 12.5 BTC, or 2.625 million bitcoins from 2016 to 2020;
• 2020: 6.25 BTC;
• 2024: 3.125 BTC.

What are the consequences of a halving?

The halving has consequences on the quantity and quality of Bitcoin.

Reduction of new BTC

The first consequence of the halving is quantitative. There will be half as many new BTC entering the market every ten minutes. In theory, this reduction triggers a ripple effect that can unfold as follows:

• Halving the BTC reward when mining a new block;
• Halving the inflation;
• Reduction of the new supply available;
• Increased demand for BTC (a simple hypothesis);
• Increase in BTC price;
• Incentive for miners in response to the BTC price increase.

Hashrate Movement

The halving also has a qualitative consequence. Indeed, the phenomenon can affect the hashrate or hash rate. It is an indicator used to assess the computational power required by miners to validate transactions, in exchange for rewards in cryptocurrency. The higher the hashrate, the higher the security of the network.

Conversely, a decrease in the hashrate means a decrease in blockchain security. In this case, the resources needed to validate transactions are lower. This phenomenon thus attracts new miners who wish to take advantage of these more accessible rewards.

Subsequently, the arrival of new miners will, in turn, lead to an increase in the hashrate. An adjustment period is thus needed to find a balance between the price of cryptocurrency and the cost of electricity required to validate transactions.

Does the halving impact the BTC price?

Yes, the halving impacts the BTC price based on scenarios observed during previous halvings. However, it should be noted that the BTC price varies primarily and only according to supply and demand.

While the supply is fixed and known to all, demand remains completely unpredictable. Macroeconomic events occurring at the time of the halving could then negate the positive impact on Bitcoin’s price.

Nevertheless, it can be said that at the time of the halving, the reduction in inflation is already factored in by the markets, as it is anticipated. Thus, there will not be significant price variations on the same day.

Thus, during the first halving on November 28, 2012, the BTC price increased by only 1.7%. However, during the months before and after the halving, the price continued to rise from $13 to $260 in four months.

What is the importance of Bitcoin halving?

In conclusion, the halving is a highly anticipated event in the crypto sphere, especially by miners looking to maximize their profitability in Bitcoin mining. Many investors try to predict the trend of BTC prices during the months before and after the halving. However, there is no guarantee that the Bitcoin halving will be beneficial for its price, especially in an uncertain economic context related to various events affecting the market. Nevertheless, it is important to keep in mind that the halving remains a significant event for Bitcoin, which derives its value from scarcity.

La Rédaction C.

L'équipe éditoriale de Cointribune unit ses voix pour s’exprimer sur des thématiques propres aux cryptomonnaies, à l'investissement, au métaverse et aux NFT, tout en s’efforçant de répondre au mieux à vos interrogations.