Table of Contents
- Introduction: What is Bitcoin Halving?
- History of Bitcoin Halving: Previous Halvings and Their Effects on Bitcoin Prices
- The Current State of Bitcoin Halving: How It Works
- The Next Bitcoin Halving: Timing and Impact
- Conclusion: The Future of Bitcoin Halving
Introduction
The cryptocurrency space is constantly buzzing with updates about airdrops, rug pulls, shit coins, and mining are constantly dropping on different Telegram and Discord groups. The latest update is on Bitcoin halving, and the gist is that the rewards on Bitcoin mining will be reduced by half. Bitcoin, like any other cryptocurrency, requires scarcity to retain its value.
The amount of BTC available will constantly remain at 21 million, and as of 2020, 12.5 BTC were added to the ecosystem every 10 minutes through virtual mining.
In 2024, that figure will drop to 3.125 until all the BTC is exhausted around 2140. The number of Bitcoin halving is a concept in cryptocurrency in which every four years or 210,000 blocks, the amount of new Bitcoin added to the ecosystem is reduced by 50% until all the 21 million BTC in the ecosystem has been exhausted.
Bitcoin mining was more lucrative initially than it is now: at some point, miners were paid 50 BTC per block when the price of Bitcoin was low, and the token itself had not attained much popularity.
Due to the forces of demand and supply, Bitcoin halvings were done to create some scarcity of the token and still keep the price high. So far, three Bitcoin halvings have been done in 2012, 2016, and 2020. The first Bitcoin split dropped the reward for mining a block to 25 BTC in 2012, while the second split reduced the reward for mining a block to 12.5 BTC in 2016.
In May 2020, Bitcoin was halved once again to 6.25 BTC once again. The next Bitcoin halving session is billed for April 2024, and it will continue until every single Bitcoin is mined. This means that for every four years until around 2140, the reward for each BTC miner will be reduced by half, and fewer cryptocurrency miners will be interested in mining BTC.
History of Bitcoin Halving: Previous Halvings and Their Effects on Bitcoin Prices
The first Bitcoin halving event occurred in November 2012 when only a few people knew about Bitcoin, and the price for a single token then was $13, but in the following year, the price for one BTC rose to $1,152.
The massive increase in the price of the token created more awareness on the token, and Bitcoin adoption increased until 2015 when the price dropped to $200, and some people gave up on BTC.
In July 2016, the price of BTC was $664 at the time of halving, and subsequently, Bitcoin came into the limelight. In the year that followed, BTC rose to $17,760, and there were discussions on social media about the possibilities that could arise from holding BTC.
The third Bitcoin halving happened during the pandemic, and one would think that even with the halving, the price of BTC would not rise significantly. However, the BTC price rose from $9,734 to a whopping $67,549 within the following year.
There is a pattern seen in each of these halving cycles: with every halving, the price of BTC increases with increased demand. As the supply of BTC reduces with each halving cycle, scarcity is created, thereby increasing demand for the tokens. As demand for BTC rises, so does the price of Bitcoin. Despite this pattern, there are numerous market factors that affect the price of a token.
The Bitcoin halving cycle usually results in an increase in token price six to twelve months after the halving has occurred. There is also an increase in token price just before the halving event because cryptocurrency investors expect a rise in the price of the token after the halving cycle and there is more token scarcity.
Halving is a good economic model that sets Bitcoin apart from other cryptocurrency tokens because it helps reduce the effect of inflation on the token. However, Bitcoin halving and its effects on price can make some investors hoard their tokens in the hope that in subsequent halving cycles, they can make a large profit.
This has a negative effect on the Bitcoin ecosystem: the majority of the tokens could be held by investors with larger capital, leaving the rest with a few BTC.
The Current State of Bitcoin Halving: How It Works
Bitcoin halving occurs when the mining process cuts the miners’ reward after every 210,000 blocks. In BTC mining, a decentralized network of validators validates all the Bitcoin transactions. A miner is paid a fixed amount of BTC for being the first to verify a block of blockchain transactions. These blocks of transactions are added every ten minutes, and the Bitcoin code has determined that once 210,000 blocks are added, the miners’ reward is cut in half.
The BTC supply remains fixed at 21 million tokens, and every halving event is coded into a launch protocol from Bitcoin’s block on a Proof-of-Work network. The Bitcoin halving event is specified by two lines of code: one line which specifies when halving should start, and another line which specifies when halving should come to an end.
The Bitcoin halving system cuts the rates at which tokens are produced, thus reducing the supply of tokens in circulation. The system will continue until about 2140 when all the Bitcoin tokens are exhausted. At that point, miners will be rewarded for transactions from the transaction fees paid by cryptocurrency users.
Miners with low capital and less efficient hardware may then face difficulties, and larger corporations may be able to fund large-scale Bitcoin mining. Halving events mark the reduction in the supply of available BTC: as far back as 2009, the reward for mining one block of BTC was 50 BTC.
In October 2023, 19.5 million BTC were already in circulation, leaving just 1.5 million BTC left for mining.
The Next Bitcoin Halving: Timing and Impact
The next Bitcoin halving session is due to happen in April 2024, and the reward for mining one block will drop to 3.125 BTC. The date is not set in stone, as the time taken to mine new blocks differs with an average of ten minutes per block. It is expected that with this halving cycle, 656, 250 new tokens will be available.
The impact of the Bitcoin halving cycle is multifactorial: the reduced reward for mining BTC will result in reduced profitability of Bitcoin mining, and more BTC miners will use their resources for mining other cryptocurrency tokens.
In addition, miners with less efficient hardware and higher energy costs will face difficulties. Another impact of the next Bitcoin halving is that it will encourage discussions and innovations in the Bitcoin ecosystem, fostering positive change.
Bitcoin halving cycles are generally predictable events, but this does not mean that there will be no buzz around the next Bitcoin halving session. There will be more discussions, social media panels, and predictions on the halving. The initial period just before and after the halving session will be associated with BTC price volatility because of token price speculations. However, after the initial volatility, BTC halving events are usually bullish.
The supply of available BTC tokens will be reduced, while the demand for BTC increases and the token price rises. BTC prices are likely to increase significantly after the next Bitcoin halving, making Bitcoin mining worthwhile for miners.
Miners will most likely rely more on transaction fees to make their profits, and there will be increased competition among miners for including transactions in blocks thereby, increasing transaction fees for cryptocurrency users.
Conclusion: The Future of Bitcoin Halving
The next Bitcoin halving is set to change things in the cryptocurrency industry, but 2024 is not the only Bitcoin halving event. In 2028, there is set to be another Bitcoin halving cycle. The reward for mining one block will be reduced to 1.5625 BTC. The total number of new BTC then is expected to be 328,125 as of 2028.
This will be the 5th Bitcoin halving event, and 98.4375% of BTC will already be mined by then.
2032 is set to bring in the 6th Bitcoin halving event: the mining reward for one block by then will be 0.78125 BTC, and 99.21875% of BTC would have already been mined.
As the halving events continue over the years until 2140, there will be no significant reward for mining blocks. However, miners could earn from transaction fees.
In general, Bitcoin Halving will change the cryptocurrency system. The reduced supply of BTC can impact the demand for the token as well as the market prices of Bitcoin and other associated tokens. Increased demand for Bitcoin will result in increased prices when the supply of the tokens is limited. The surge in BTC prices can result in massive profits for crypto investors and BTC miners.
In addition, the effect of reduced profitability of Bitcoin mining will result in more innovative use of hardware by the miners and increased transaction fees for cryptocurrency users. These developments result in improved security and strengthening of the Bitcoin ecosystem.
Disclaimer
This article is based on the personal research of the writer and not a representation of the opinions of HackerNoon staff or HackerNoon as an organization. Do your own research before buying Bitcoin or any other cryptocurrency token.