43. Halving Bitcoin – what is it, and how does it affect the price?
The halving of Bitcoin is one of the key events in its blockchain. It is the moment when the supply of Bitcoin and the reward for mining is halved.
Each halving lowers the inflation rate and automatically makes the Bitcoin price rise. Since the last halving, which took place in 2022, miners receive 6.25 BTC per block.
Today we will discuss the halving process in detail – what it is and what consequences it has.
The Bitcoin network and its mining
Now, before we explain what halving is, we need to remember some important points about Bitcoin.
Bitcoin is based on blockchain technology. This is a network of computers (nodes) that are responsible for approving transactions and accepting new blocks on the network. The node that approves (or rejects) a particular transaction performs a series of checks that help it make the right decision. Among other things, it must check that the transaction contains the correct validation parameters and that it does not exceed the required length.
Of course, each such transaction is approved individually. This is done only after all transactions in a particular block have been approved. Once approved, such a transaction is added to an already existing chain of blocks and distributed to other nodes.
Who can participate in the Bitcoin network? Anyone with enough computing power to download the entire blockchain and its transaction history to date. For this reason, not everyone can become a miner.
When we talk about miners, we think of the process of Bitcoin mining. This is an activity where people use their computers to mine new blocks. This requires sophisticated equipment and enormous computing power.
Bitcoin miners solve complex mathematical puzzles and confirm the legitimacy of transactions. The resulting transactions are added to the blockchain and form the blockchain. Miners who have solved complex mathematical puzzles and confirmed transactions are rewarded with Bitcoins. Of course, transactions of higher value require more confirmations to ensure the security of the entire chain.
Limited supply of Bitcoin
Satoshi Nakamoto had the idea that only 21 million Bitcoin coins would be available. Such an idea is a clear contrast to fiat currencies.
Interestingly, the original creation of fiat currencies was subject to quite strict rules. For example, to create a dollar, the US government had to hold a certain amount of gold in reserve. This was called the “gold standard”
Over time, these principles became irrelevant. Therefore, they evolved into the system we know today. Nakamoto believed that this approach would have disastrous consequences for fiat currencies in the future. Therefore, with the creation of Bitcoin, he prevented the creation of more than 21 million Bitcoins.
Bitcoin Halving – definition
Every four years, i.e. approximately after 210,000 blocks have been mined, the reward for mining blocks is halved. This entire process is called halving. It continues until all Bitcoins are mined. It is estimated that this will be the case around the year 2140.
Look at how halving has looked recently:
2009 – The reward for mining a bitcoin block was 50 BTC/block.
2012 – The first halving of Bitcoin. The block reward dropped to 25 BTC/block.
2016 – Another halving. This year, the block reward dropped to 12.5 BTC.
2020 – Miners receive 6.25 BTC per block.
2024 – next year, block rewards will be 3.125 BTC/block.
2140 – 64 follows, the final halving. No rewards or new Bitcoins will be created.
The impact of halving on the value of Bitcoin
Halving bitcoin works like a chain:
- Halving of Bitcoin.
- Overfishing inflation.
- Reduce the supply of Bitcoin.
- Higher demand for this cryptocurrency.
- Increase in the price of Bitcoin. Halving Bitcoin – what is it and how does it affect the price?
- More mining by miners.
At this point you may ask us – what if halving does not increase demand for bitcoin or affect the price? In that case, miners would have no incentive to continue. To prevent such a scenario, Bitcoin also has changes to the difficulty of mining.
If there is a halving and the value of Bitcoin does not increase, the difficulty of mining is reduced. All this serves to further motivate miners to continue.In simpler terms, the rewards for mining bitcoin are lower, but it is easier to mine them.
Although the system has always worked so far, halving is always surrounded by speculation and turbulence in the cryptocurrency market. How will the market react to the halving of Bitcoin in 2024? No one knows.
The halving of Bitcoin and its effects
A halving is always a big event in the cryptocurrency ecosystem. It affects not only the markets, but also investors. Let us now look at how halving affects individual units in general.
The halving makes the price of Bitcoin go up. This is because of the reduction in supply and the increase in demand for Bitcoin. This is good news for investors. Waiting for the halving, interest, and trading in Bitcoin is increasing.
On the other hand, we have the miners. Fewer prices can be a big handicap for individual miners or small mining companies. They cannot then compete with the big mining companies. So, we have a situation where the price of cryptocurrency goes up, but the number of miners in the ecosystem goes down.
In the case of a halving, you also have to consider that the probability of 51% attack increases. The more miners leave the network, the less secure it becomes. We wrote about the 51% attack here [LINK – WHAT THE 51% ATTACK IS – LEVEL MASTER]. This is a topic worth exploring, especially before the upcoming halving of Bitcoin.
You already know what the bitcoin halving is all about. There is another one waiting for us in 2024. The process will repeat itself until bitcoin is fully mined, that is, until 2140. After that, miners will be rewarded with fees for processing transactions on the blockchain.
Do not forget
- After halving, the block reward will be halved.
- The last halving took place on 11 May 2020. Since then, the block reward has been 6.25 BTC.
- The last halving will take place in 2140. At that time, Bitcoin will be completely mined.