What Is Bitcoin Halving?
One of the most significant events in the Bitcoin blockchain is halving. Triggered after every four years, the halving reduces the block reward by half. In 2009, the mining rewards were 50 BTC per block and then the network experienced its first halving in 2012, reducing the block rewards to 25 BTC.
As of today, Bitcoin miners receive 6.25 Bitcoin for each block they successfully mine. The next halving is set to occur in 2024, reducing block rewards to 3.125. This event will continue to happen until the rewards are 0 and there is no more Bitcoin left to mine.
In this guide, we will explore everything you need to know about Bitcoin halving including Bitcoin’s halving history, what happens when there are no more block rewards, how Bitcoin mining works, and if halving impacts Bitcoin’s price. Let’s get started.
Bitcoin halving is an event when the rewards for mining each block are cut in half.
The aim of halving is to counter Bitcoin inflation.
The next halving will occur in 2024, reducing rewards from 6.25 BTC to 3.125 BTC.
The last halving is expected to be in 2140.
After every halving, Bitcoin’s price experience a surge in price.
How Does Bitcoin Work?
Before explaining what Bitcoin halving is, we must first understand the basics of how the Bitcoin blockchain works. Bitcoin is built on a distributed digital record known as the blockchain. As the name implies, the blockchain is a series of blocks containing data on bitcoin transactions such as the total amount sent (buy large amounts of Bitcoin), who sent the coins, who received the coins, and the time and date of when the transaction took place. Once a new block is added to the chain, its data becomes accessible to anyone who wants to view it.
Bitcoin is fully decentralized, meaning a single entity does not control it. This provides trustworthiness to users as they are in control of the network. For example, anyone on Wikipedia can create a new page or add links. However, the changes will only take place if the majority of people agree when voting. This is similar to how Bitcoin works and why there haven’t been successful malicious attacks.
Before any new data is stored on the Bitcoin blockchain, it must be verified by multiple BTC miners by completing the correct encryption puzzle. Once a transaction has been verified to be legitimate, it's added to a block and a new block will be aligned in the chain to store the new incoming data.
Once a block is mined, rewards are distributed to the bitcoin miners who have helped verify the transactions. At around every 210,000 mined blocks which take around 4 years, Bitcoin mining rewards are slashed to half, hence the name “Bitcoin Halving”.
What Is Bitcoin Mining in Basic Terms?
Bitcoin mining is a process in which complex puzzles are solved by the miners to verify the bitcoin transactions and add them to the block. Solving the puzzles requires a lot of GPU power that consumes an enormous amount of electricity.
When bitcoin miners validate transactions, it’s added to a block, and once the block is filled, the new block is added to the chain for storing the record of upcoming transactions, thus creating the chain, hence the name- blockchain.
Whenever a block is mined and added to the chain, the reward is released in the form of Bitcoins and distributed in the favor of the miners who helped in verifying the transactions and maintaining the integrity of the network.
Bitcoin Halving Explained
The term “Bitcoin Halving” refers to an event in which the block mining reward is reduced by 50%. After every 210,000 mined blocks which consume around four years, the rewards given to miners for validating transactions are cut in half. This is Bitcoin’s way of protecting the currency from the adverse effects of inflation.
However, Bitcoin halvings events will not last forever. In fact, the last Bitcoin halving is expected to occur in 2140, when all 21 million coins will be mined and enter the market. Once this happens, miners will no longer earn rewards for mining each block. Instead, rewards will be allocated for processing transactions, incentivizing miners to keep the bitcoin network running.
As of this moment, the reward for mining each block is 6.25. Previously in 2009, this reward was 50 Bitcoin. After the first bitcoin halving, it fell to 25 Bitcoin, then to 12.5, and now to 6.25 in 2020. In 2024 (the next halving), the rewards will fall to 3.125 Bitcoin.
Bitcoin Halving Brief History
Bitcoin halvings reduce the rate at which new BTC is released into circulation. As a result, Bitcoin tends to surge in price with each halving as the supply is reduced while demand is high. Here’s how Bitcoin’s price has been affected with each halving:
|Halving Time Period||Rewards for Mining After Bitcoin Halving||Bitcoin’s Value on Halving Day||Bitcoin’s Value 100 Days After Halving||Bitcoin’s Value 365 Days After Halving|
When Is the Next Bitcoin Halving?
BTC halvings occur every 210,000 mined blocks, approximately every four years. The last halving took place on May 11th, 2020. Therefore, we can expect the next halving to happen in 2024. In total, there will be 64 Bitcoin halving events, with the final one taking place in 2140.
How Hash Rates Can Impact Bitcoin Halving
Hash rate refers to how much computational power is used to mine a specific cryptocurrency. Currently, Bitcoin uses the most hash rate exceeding over 250M TH/s and growing. The rising power consumption could be the result of reduced bitcoin prices on graphics cards and mining rigs.
Also, Ethereum recently transitioned to a proof-of-stake consensus mechanism, resulting in no need for GPUs. As a result, ETH miners may have transferred to mining BTC, temporarily increasing the hash rate.
Bitcoin has peaked at a 282.17 million hash rate, meaning that blocks are getting mined much faster. This is a great indication for Bitcoin as more people are jumping on the opportunity to mine. Therefore, it is expected that we might see the next Bitcoin halving occurring in late 2023 instead of 2024.
Do we need Bitcoin Halving?
Yes, in short, Bitcoin halving is necessary to combat inflation and drive the price upward. The Bitcoin halving chain reaction looks similar to this:
Bitcoin’s mining rewards are cut in half, reducing inflation.
The lower supply increases demand, resulting in a higher price for each coin.
Due to the higher price, miners are still incentivized to mine, although the rewards in BTC are smaller.
What if Bitcoin’s Price Does Not Increase After a Halving?
If Bitcoin does not surge in value after a halving, there is no incentive for miners to continue working. To avoid situations like this, the difficulty of mining each block could be reduced to incentivize miners again. This has happened twice in the past and has proven to work successfully.
How Does Bitcoin Halving Affect Investors and Miners?
Bitcoin halving is a major event that has effects across the whole network. Here’s how it impacts investors and miners:
In basic terms, a Bitcoin halving will reduce rewards for mining each block in half. For example, in the next halving in 2024, miners will receive 3.125 BTC for each block instead of 6.25.
Moreover, smaller miners are impacted heavily as the rewards are diminished, making it harder to stay profitable. This is even more evident when BTC doesn’t spike in value, and smaller miners find it harder to survive or compete against huge mining companies.
Also, this can cause a ripple effect as more miners move off the Bitcoin network. For example, coming closer to the probability of a 51% attack on Bitcoin.
Historically, Bitcoin halvings result in increased prices for the surging demand and reduced supply. This is brilliant for investors as they can time when to buy and sell off to make a substantial profit. Also, in anticipation of this halving event, we often see Bitcoin’s blockchain gain increased activity.
However, you should note that a price surge is not guaranteed every halving cycle. Therefore, if you decide to buy Bitcoin because of an upcoming halving, consider all the associated risks and never invest more than you can afford to lose.
How to Take Advantage of Bitcoin Halving
Now, it's no secret that when a Bitcoin halving occurs, BTC’s value almost always pumps for a short duration before falling again. Therefore, you can make a profit if you correctly time your buy-in moments. Here are some ways to take advantage of a Bitcoin halving event:
Bitcoin CFDs: Cryptocurrency brokers can issue CFDs, which are derivative products. This means you’ll invest in Bitcoin whiles not owning the underlying asset. Also, Bitcoin brokers like eToro are easier to use than most exchanges. Please note that CFD trading in the United States is considered an illegal activity.
Leverage Trade: Leverage trading allows you to borrow funds from the exchange to place trade orders. For example, if you have $100 and leverage trade Bitcoin at 50x, you can place orders up to $5,000. However, you will have a liquidity number, and if Bitcoin falls above or below that price, you can potentially lose all your money. Therefore, this option is for those with a lot of trading experience. Also, some exchanges let you long or short Bitcoin, giving you more investment options.
HODL: Hold on for dear life (HODL) is an investment strategy where you buy coins and hold long-term no matter what. This method can work great if you buy before the BTC halving when prices haven’t surged. As we’ve shown, the price differences 1-year or 100-days later are vastly different, so holding Bitcoin during this time can be worth the wait.
Shorting Bitcoin: If you haven’t caught Bitcoin before or during a dip, you can potentially earn a profit by shorting Bitcoin once it has surged in value. Brokers can offer this service in the form of CFDs. Alternatively, you can use cryptocurrency exchanges if they allow shorting coins.
What Will Happen After There Is No More Bitcoin Left to Mine?
The final Bitcoin is expected to be mined in around 2140 and at this point, all 21 million Bitcoin will enter circulation and the halving schedule will stop. However, miners will still be incentivized to keep validating transactions for a reward. As a result, future transactions on the Bitcoin blockchain will likely have higher transaction fees paid to miners.
To summarize, halvings occur roughly every four years or once 210,000 blocks are mined. Once a halving happens, the rewards for mining a Bitcoin block are slashed in half. For example, after the first bitcoin halving, the rewards were 25, and then 12.5, and now 6.25. This halving event prevents inflation and increases Bitcoin’s price by driving up demand.
The final Bitcoin halving is expected to happen in 2140 when there will be no more rewards for mining a BTC block. Instead, miners will earn rewards by validating transactions.
Moreover, leading up to a halving, investors expect price rises for Bitcoin and a dip afterwards. This provides multiple opportunities for investors to profit by using various strategies like the ones we’ve mentioned. However, remember that cryptocurrencies are very volatile, and there is a real risk of losing money.