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Bitcoin Halving

Bitcoin Halving

29 Oct 2020

Reading Time: 2 minutes

At the inception of Bitcoin, the mysterious founder under the alias of Satoshi Nakamoto embedded a technology into its system.  This pertains to “halves”. It is a reward that Bitcoin miners receive for processing transactions. This happens every 210,000 blocks mined, or about every four years. This process is what we call Bitcoin halvingThe latest bitcoin halving occurred on May 11, 2020. The reward was reduced to 6.25 Bitcoins per block, down from 12.5. To put this number into perspective, Bitcoin started in 2009 by rewarding miners 50 Bitcoins for each chain mined. On the first halving event, this was reduced to 25, and then 12.5 on the one after. Currently, we’re at 6.25.

Why does this technology exist on the Bitcoin blockchain?

If we look at the halving events closely, we can see a trend where halving has correlated with intense boom and bust cycles. Even when the price decreases after the initial boom, it has ended with higher prices than before the event. This artificial inflation and deflation create a sort of high demand and low supply, which increases the value of Bitcoin. There are only 21 million Bitcoins in existence. This means that the total number of Bitcoin to ever exist, be minted or be mined, is capped at 21 million. This creates a scarcity in its existence, similar to gold. When an asset is a scarce commodity, its value increases. You can just imagine how valuable gold would be, and how high its price would be if its quantity were cut in half every four years.

Another way this creates scarcity is that it decreases the number of Bitcoin in circulation. If this technology did not exist, Bitcoin would be so widely available that it would lose its value, similar to printing hordes of dollar bills. This inflation would make its value go down. Bitcoin's way of using a synthetic form of inflation that halves every four years until all Bitcoin is released and is in circulation, as well as increasing value, decreases the total amount of bitcoin in circulation.

Bitcoin Mining and Halving

Bitcoin mining is the process in which people participate in Bitcoin's blockchain network as a transaction validator or processor. Miners need to give time and energy to run computer hardware and solve complex equations in a process called Proof of Work to be rewarded. It is important though to keep miners incentivized, despite the reduced block reward at each halving. The trend of increasing value after a halving does precisely this. So, even though the number of Bitcoin they are rewarded is less, it has more value.

Price halving is a much hyped and anticipated moment in the crypto world. This event can be used alongside other factors to help determine Bitcoin’s future value or long-term price action. The final halving is set to occur around 2140, so we still have some time before the last Bitcoin is mined. While it is uncertain what will happen when the last halving occurs, for the moment, halving is a great indicator of worth and process of making Bitcoin a valuable asset.

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