Every four years or so, the process known as Bitcoin halving occurs. To Bitcoin investors, this is a monumentally significant occurrence as it impacts the digital currency in many ways, including the price.
But what is Bitcoin halving precisely? Essentially, it’s an event that denotes when rewards given for Bitcoin transactions are cut in half. Even though investors know when to expect it approximately, no one knows the exact date and time it happens.
If you’re storing coins in your online Bitcoin wallet, ready to invest, it’s essential to become familiar with Bitcoin halving and its unusual characteristics.
What is Bitcoin Halving, and Why Does It Happen?
The primary purpose of Bitcoin halving is to ensure that the number of Bitcoins in circulation doesn’t increase too fast. But why would that matter?
To understand Bitcoin and Bitcoin halving, we must first explain one of the most important stipulations of cryptocurrency. In its source code, it is written that there is a finite supply of Bitcoin. There can only be 21 million Bitcoins.
That’s the limited number miners will excavate, and from that moment on, Bitcoin mining is completed. But investing in Bitcoin will not stop. Already, there are close to 19 million Bitcoins in circulation. And it’s estimated that the last coin will be mined around the year 2140.
On average, a Bitcoin is introduced at a fixed rate of one block per 10 minutes or so. However, every four years, these blocks are reduced by 50%. This is referred to as Bitcoin halving.
The rate at which Bitcoins are going into circulation is cut in half every 210,000 mined blocks. But why is Bitcoin halving significant? It’s all about the dwindling supply of Bitcoin. Halving ensures a scheduled drop in value and provides the incentive to users to continue to mine.
The History of Bitcoin Halving
So far, Bitcoin halving has occurred three times. The first event took place in November 2012, the second in July 2016, and the third in May 2020.
In the first halving, the reward per block went from 50 to 25 coins, and currently, the reward is 6.25 coins per block.
When the next Bitcoin halving comes around in 2024, the reward will be 3.125 per single block, and we’ll already have 94% of Bitcoins in circulation. And by 2032, 99% of Bitcoins will be mined and in circulation.
The Implications of Bitcoin Halving
We know that Bitcoin halving is vital for delaying the inevitable, which is mining the last bitcoin, but there are other reasons why these events should matter to investors.
First, all three Bitcoin halving events have been associated with significant surges in Bitcoin’s value. After the first Bitcoin halving, the price of Bitcoin increased by 3700%, and the upwards trend continued in the following events.
But there are no guarantees that the next Bitcoin halving would have the same effect. Should the price remain the same or decrease, the miners would no longer have any incentive to mine.
The good news is that there is a strategy in place if the Bitcoin halving doesn’t result in a price surge. The blockchain network will then change the difficulty of the mining transactions. In essence, the complicated mathematical equations would become easier to solve and, in return, require fewer resources.
What Happens When the Last Bitcoin Is Mined?
First of all, there won’t be any more Bitcoin halving events. But many wonder if that means it’s also the end of Bitcoin. That’s not the case at all.
Even though miners won’t find any Bitcoins, they will still have the incentive to validate and confirm new transactions on the blockchain because these processes come with a fee. But we should also take a few special considerations into account.
The mining process may slow down. The significant decreases in rewards caused by Bitcoin halving could force miners to shift their attention elsewhere.
We also have to consider that the landscape of cryptocurrency is constantly changing and evolving, and that it’s nearly impossible to imagine what the system will look like by the time the last Bitcoin is mined.
Prepare for the Next Bitcoin Halving
The coins you have in your online Bitcoin wallet app today might be worth hundreds or even thousands of times more when the next Bitcoin halving happens.
But there are no guarantees, and unless you have any better ideas, it’s probably not a great strategy to simply hold on to them until then.
However, if you were gifted a few coins and have no plans, perhaps it’s the best thing to do. On the other hand, savvy investors and miners will prepare for the next halving and all it might bring.
As a writer, Ruben is an advocate of blockchain technology and cryptocurrency in general. He writes about all things from cryptography to economics, with a focus on how it applies to cryptocurrencies. He is also passionate about writing about topics such as decentralization, open-sourced software development, and copyright law.
