Definition

A Bitcoin halving occurs roughly every 4 years and is when the reward for mining Bitcoin, (and thus the supply of newly produced Bitcoins entering circulation) is cut in half.

Understanding Bitcoin Halvings

Bitcoin halvings are an event that pseudonymous creator of Bitcoin, Satoshi Nakamoto, built into the system to give Bitcoin the unique properties which makes it valuable in a way that normal fiat currency is not.  

In a nutshell, Bitcoin’s network is kept secure by Bitcoin miners who validate transactions and store them in ‘blocks’ in order to earn a ‘block reward’ in the form of Bitcoin (aka Bitcoin mining).

After every 210,000 blocks of transactions are mined, or roughly every four years, the block reward given to Bitcoin miners for validating transactions is cut it half, which:

• Halves the rate at which new Bitcoin is released into circulation, limiting its supply (of which there will only ever be 21 million in existence, unlike fiat currency which is infinite)
• Combats inflation, theoretically making the value of Bitcoin rise over time (also unlike fiat, which decreases in value due to rising prices of goods & services and money being constantly printed to keep up)

Isn’t this bad for miners?

But you might ask, isn’t this unfair to the miners? Aren’t they still working hard to process transactions and now only getting paid half of what they used to? Not exactly.

As each Bitcoin halving event reduces Bitcoin’s supply, historically this has led to a significant price increase in the value of Bitcoin, which is why Bitcoin halvings are commonly associated with the price of Bitcoin surging to dizzying new heights. When supply is diminished and demand stays the same or rises, the value of an asset will also rise, especially for a finite asset like Bitcoin.

The halvings

Since Bitcoin began in 2009, there have been 3 halving events.

• The initial reward was 50BTC per block
• This halved to 25BTC per block in 2012
• Then it halved again to 12.5BTC in 2016
• And finally it halved to 6.25BTC per block in May of 2020

The next halving is predicted to take place in 2024 and will keep occurring roughly every four years until around 2140 when there will be no more Bitcoin left to mine.

Digital Gold

Bitcoin is designed to simulate a commodity like gold whose limited supply has allowed it to maintain its value as an international medium of exchange and store of value for over 6,000 years. You can’t say Satoshi Nakamoto wasn’t thinking ahead!

If Bitcoins are created too quickly there will be so many in circulation that they will have very little value (similar to how printing money devalues it).

This is one of the major differences between Bitcoin and fiat currency. USD, GBP and AUD are inflationary, whereas Bitcoin is designed to be deflationary.

For miners it’s worth continuing to play  the game because even though the reward for mining decreases, the value of Bitcoin, in theory, should increase. Put simply, Bitcoin is valuable by design.

The maximum supply of Bitcoin is 21 million. This predetermined number makes Bitcoin scarce, and this scarcity combined with Bitcoin’s utility is what largely influences the currency’s market value. As of May 2021, there were more than 18.7 million  Bitcoins in circulation. This means just under 2.3 million  Bitcoin are left to be released through mining rewards, which will run out around 2140.

The relationship between halvings and Bitcoin’s price

While Bitcoin’s price depends on a number of factors, halving events have historically led to massive bull runs for Bitcoin in the following months, consistently taking the digital currency to new all-time-highs.

• First halving: Upon the first halving in 2012, the price of bitcoin was around $11. By the end of the year, the price increased to $1,100.
• Second halving: In 2016, the Bitcoin network completed 420,000 blocks, and the second halving occurred. Bitcoin hovered around $500-$1,000 for a few months before surging to $20,000 by the end of 2017.
• Third halving: The third (and most recent) halving occurred in May 2020. When the halving occurred, Bitcoin was trading around $9,000. Just over a year later, in April 2021, Bitcoin made a whopping new all-time-high of $65,000 before levelling out as it has done in previous bull markets.

Given the historical price action associated with Bitcoin halvings, it is safe to say that a lot of people will be preparing and eagerly waiting for the next halving in 2024.

What happens when all 21 million Bitcoins have been mined?

Good question. Well, the final Bitcoin halving, which will finish its 21 million supply, is set to occur in 2140. After this, no block rewards will remain so miners will be rewarded with fees from people using the network.

The competition to earn these fees is designed to continue incentivising miners to keep processing transactions and maintaining the network – who knows, maybe Bitcoin will be worth enough for this to still be lucrative?

Key Takeaways

• Bitcoin’s network is kept secure by Bitcoin miners who earn a Bitcoin reward for validating transactions.
• A Bitcoin halving is when the reward for mining Bitcoin is cut in half. It occurs roughly every four years.
• Bitcoin halvings combat inflation and give Bitcoin the unique properties to be deflationary instead of inflationary like fiat currency.
• Bitcoin halvings are commonly associated with a massive surge in the price of Bitcoin and a subsequent crypto bull market.
• There have been 3 halvings so far and the next halving is predicted to take place in 2024.
• Bitcoin has a maximum supply (like gold) of 21 million, all of which will be mined by 2140.