Guide

The Bitcoin Halving: What Is It and Why Should You Care?

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Image Credit: Pezibear/pixabay

The next Bitcoin halving is due to happen sometime in 2020. If you remember the last halving, are looking forward to this halving, or have no idea what we’re talking about, then here’s everything you need to know about this exciting event.

What Is the Bitcoin Halving?

Bitcoin halving reduces the block reward for miners

Like some form of crypto Olympics, the halving happens roughly every four years. It reduces the block reward, and that’s all it is, but to truly understand it and why it’s significant, you need to understand mining.

With Bitcoin, miners compete to solve complex problems. The winner gets to produce the next Bitcoin block and gets paid a reward of several shiny new Bitcoins for their trouble. Our guide to blockchain consensus algorithms goes into more details, but this simple description will suffice for now.

Currently, the Bitcoin block reward is 12.5 Bitcoins. Roughly every ten minutes, a miner mines a new block and claims these 12.5 Bitcoins, but this hasn’t always been the case. When Bitcoin arrived way back in 2008, the block reward was a stunning 50 Bitcoins. Few could have predicted the dizzy heights Bitcoin’s price would go on to reach, but those early miners definitely got in at a bargain price.

During the first halving, this reward dropped from 50 to 25 Bitcoins. After the second halving, it dropped again to its current block reward of 12.5 Bitcoins. The upcoming third halving will reduce the reward further to 6.25 Bitcoins per block.

If you’d like to know more about Bitcoin’s history, then Dan’s Bitcoin Coin Study is an excellent place to start.

What’s the Point of the Bitcoin Halving?

Bitcoin halving controls inflation

One key cornerstone of Bitcoin is the fact that you can’t print new ones when it’s convenient for you. 21 million is your limit, and that will never change. Bitcoin acts as a commodity such as a precious metal. Gold has a finite supply. Some of it is stuck in the earth, never to move, but you can’t manufacture more. Once you extract an ounce of gold, you diminish the total remaining supply. The same is true of Bitcoin.

The hope is that this halving helps ensure that Bitcoin can maintain its value throughout the rest of its life. If there was an unlimited supply of Bitcoins, such that anyone who wanted could own millions, or hit print on their desktop computer and produce a brand new Bitcoin, then it would be worthless. Supply and demand dictate that a limited resource that’s in demand must increase in value. What better way to create demand than by reducing the flow of new Bitcoins into the market.

When Does the Next Bitcoin Halving Happen?

The next Bitcoin halving will happen during 2020

The next halving is set to happen in mid-2020. We know this because new blocks get produced every ten minutes, and Bitcoin halves every 210,000 blocks. The last halving happened on 07-09-2016. This equates to:

210,000 (blocks) x 10 (minutes) = 2,100,000 minutes

2,100,000 (minutes) / 60 = 35,000 hours

35,000 (hours) / 24 = 1458 days

1458 (days) / 365 = 4 years

As there will only ever be 21 million Bitcoins, this halving happens after 21 million minutes. Perhaps this is why the total number of Bitcoins exists, to produce a nice round number with a four-year halving.

What Happens When There Are No More Bitcoins to Mine?

Bitcoin will stop halving there are no Bitcoins left to mine

As we’ve seen, a limited supply of Bitcoin is a good thing, and so the halving cannot and will not continue forever. With the supply of new Bitcoins diminishing by 50% every four years, there will come a time when the halving stops. Mathematics dictates that you can keep reducing something by half forever (which is true), but the Satoshi (the smallest fraction of a Bitcoin: 0.00000001) means there will come a time where you cannot practically reduce the reward any longer.

When this happens (in roughly 120 years) the halving will stop. At this point, miners will only get paid in transaction fees. While this incentive pales in comparison when compared to today’s block rewards, it’s still a long way off, and will at least ensure that some people continue to process transactions while getting paid a fair fee to do so.

How Does the Bitcoin Community Feel About the Halving?

Bitcoin halving: to the moon!

The halving has always had a positive impact on Bitcoin, the community and the price. While many miners dislike a reduction in rewards, this is often balanced out by the rapid price increase that follows.

This does not constitute investment advice.

If you look at the data, every time a halving happens, the Bitcoin price rockets to stratospheric new highs. While a sample set of two is hardly the final say in the matter, and anything can happen with Bitcoin, it’s probable that 2020’s halving will see Bitcoin reach a new and exciting all-time high price.

After the first halving in November 2012, the price rallied from $12.31 at the halving, to an all-time high of $994.21. An increase of 7976%. It took just over one year to reach this all-time high.

After the second halving in July 2016, the price started at $650.63 and went on to reach $19,535.70 after one and a half years. An increase of 2902%.

Statistically, buying Bitcoin at or around the halving, and waiting between one and two years is likely to yield a significant profit. This is not investment advice. Nothing is guaranteed in cryptocurrency!

HODL Through the Halving!

While its name sounds like something out of The Hunger Games, the Bitcoin Halving is a well thought out and much-needed feature. It helps to maintain a stable price, limits the supply of new Bitcoins into the market, and provides a way to slow the introduction of new coins to protect the not yet mined supply from running out early on in Bitcoin’s life.

We think the halving is a big deal, and one worthy of celebration. This quadrennial event is the Olympics of the cryptocurrency world. What are your thoughts? Do you think Bitcoin would fail without this, or is it a useless trick to create artificial demand? Let us know in the comments below, or even better join us on social media!

Joe Coburn
With a background in software development, Joe quickly realized the potential in blockchain technology when it first hit the scene. He started a personal blog (RIP) about cryptocurrency developments way back in 2010, and since then he’s been fascinated by the concept of decentralized currency.

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