Bitcoin Halving
What is Bitcoin halving?
Bitcoin halving is one of the most important events in the cryptocurrency industry. To help you understand this better, let's first explain how this digital currency is mined. Mining is the process by which miners acquire bitcoins using specialized equipment.
Miners solve complex mathematical equations to complete "blocks" that are added to the blockchain. A block is a file that can store 1 megabyte (MB) of bitcoin transactions. As the number of transactions increases, the Bitcoin network also grows.
After solving equations or confirming transactions, which typically takes 10 minutes, miners receive bitcoins as a reward. During a Bitcoin halving, the reward for miners is halved — this usually occurs after mining 210,000 blocks, on average every four years.
How does it work?
Halving occurs every 210,000 mined blocks. When BTC first appeared, miners received 50 BTC for each confirmed block. As the amount of mined BTC increased, in 2012 the reward halved, and miners started receiving 25 BTC per block. In 2016, another 210,000 blocks were generated, and the reward decreased again to 12.5 BTC. The latest Bitcoin halving occurred in May 2020, and when another 210,000 blocks were mined, the reward decreased again to 6.25 BTC per block.
How does halving affect the price of BTC?
Halving can have a certain influence on the price of Bitcoin. Here's how previous halvings have affected the BTC market price.
First Halving (2012) – The first halving in Bitcoin's history occurred on November 28, 2012. After mining 210,000 blocks, the miners' reward decreased from 50 BTC to 25 BTC per block. Before the halving, the price of Bitcoin was $12 per coin. A year later, the market price of BTC exceeded $960.
Second Halving (2016) – The second halving occurred after 420,000 blocks were mined. On July 9, 2016, miners started receiving 12.5 BTC per block. Before the second halving, the price of Bitcoin was $665, and a year later, it reached $2550.
Third Halving (2020) – In 2020, the Bitcoin halving occurred on May 11. After another 210,000 blocks were mined, the miners' reward became 6.25 BTC per block. By the end of 2020, the Bitcoin price reached a record high of $29,000.
Fourth Halving (2024) – The next Bitcoin halving is expected in 2024, when 840,000 blocks will be mined. After this, miners will receive 3.125 BTC per block.
This will continue until 21 million BTC are mined — some crypto enthusiasts believe this will happen in 2140. But who knows what will happen in the future?
Why does Bitcoin halve?
Now that you know how halving works, you might think: "Is this fair to miners?" If you're familiar with Bitcoin, you probably know that its mysterious creator, Satoshi Nakamoto, limited the BTC supply to 21 million.
By now, 88.83% of the total BTC supply has been mined. This means there are only 2.3 million BTC left. However, we can't be sure that all mined 18.6 million BTC are currently circulating on the market. According to the New York Times, around 20% of BTC worth billions of dollars are in lost or discarded wallets.
After 21 million BTC are mined, miners will stop receiving block rewards. They will only be able to earn income by confirming transactions. Despite the fact that miners' rewards decrease with each halving, the value of Bitcoin increases due to its limited supply, and its price continues to rise. The increase in the price of Bitcoin also motivates miners to continue mining.
Effects of BTC halving
Bitcoin halving has various consequences: it affects both the price of Bitcoin and the rewards for miners, as well as traders' attitudes towards market trends. Below are some positive and negative effects of halving.
⚒️ For Miners
Mining is one of the most effective ways to acquire Bitcoin. However, mining entails expenses, which depend on whether you mine solo or participate in a mining pool. In any case, you need powerful equipment and specialized software capable of mining Bitcoin.
For some miners, the reduction in rewards will be bad news. If they have invested large sums in equipment, the reduced block reward may not cover their mining operation expenses. However, it's worth noting that due to Bitcoin's high volatility, this situation may change.
⚒️ For Traders
While some miners may view Bitcoin halving negatively, it's a long-awaited event for Bitcoin enthusiasts, traders, and investors. Why? Because it implies a decrease in the number of coins generated by miners. A limited number of mined coins sets the stage for BTC price appreciation, provided that demand in the market continues to grow. Increased demand with limited supply allows traders to sell their BTC at a higher price.
This trend has been observed during previous halvings, but it's important to consider that the value of this asset can quickly rise or fall depending on market events.
⚒️ For Bitcoin Price
Earlier, we mentioned that Bitcoin halving can lead to an increase in its market price. However, this doesn't always happen, and we can't predict Bitcoin's price with certainty. Its price may surge in a few days, months, or years, or it may fall during the same period.
Moreover, will people become more interested in cryptocurrency after halving? Will it signify a "bullish" trend? Will there be more traders in the market? So many questions to which we don't have answers yet. We'll have to wait and see what happens to Bitcoin's price.
Can you profit from halving?
Bitcoin is extremely volatile, so regardless of halving, you can always profit from it. You can track BTC price trends for weeks or months to determine when it's best to buy or sell.
Just remember that before making any trades, you need to find a reliable cryptocurrency wallet and platform. If you want to trade Bitcoins, you can start by creating an account on Paxful. You'll also get a free Bitcoin wallet to manage your funds and track all your transactions.
Is halving good or bad?
We've already discussed that halving has different consequences for the market price of BTC, traders, and investors — both positive and negative. Like with other assets and commodities, the price of Bitcoin is determined by supply and demand. However, for miners whose rewards decrease every four years, the potential profit is not as attractive as the 50 BTC they could receive initially.
But there's no doubt that Bitcoin's growing popularity will lead to further price appreciation. So, is halving good or bad? It's up to you to decide.