What is Bitcoin halving? Will Bitcoin rise after it?

Upon the launch of Bitcoin, Satoshi Nakamoto presented a code that would help manage its distribution. The code is known as the Bitcoin halving and is a crucial aspect of the ecosystem as it determines how the network introduces new coins into circulation. Bitcoin has undergone three halving events so far, with the block reward diminishing with each event.

In this article, we'll explain the meaning of Bitcoin halving and consider how it affects the Bitcoin network.

Defining Bitcoin halving

Bitcoin halving is an event programmed into the protocol that halves the block rewards given to miners — which, in turn, halves the amount of new coins entering circulation. Block rewards refer to the incentive paid to miners for contributing their computational resources to verify transactions and secure the Bitcoin network. The mining process is decentralized, and anyone who can afford the required processing capacity can participate.

The Bitcoin halving occurs once the network mines 210,000 blocks. Based on the block time, it takes approximately four years to achieve this target. Consequently, since the last Bitcoin Halving in 2020, the next one will happen between April and May 2024.

The history of Bitcoin halving

When Bitcoin was introduced in 2009, miners received 50 Bitcoin per block mined. That means a node earned 50 Bitcoin for every new block discovered. Apart from being a reward for miners, the rewards also serve as the mechanism for introducing new bitcoins into the network.

The first Bitcoin halving event happened in November 2012, nearly four years after the protocol launched. The Bitcoin network slashed mining rewards by half at the point of halving, and miners received 25 Bitcoin for every new block discovered. It then took another four years for the next batch of 210,000 blocks to be mined, which meant the second halving took place in July 2016. This halving resulted in miners earning 12.5 Bitcoin for each discovered block.

Finally, in May 2020, Bitcoin halved for the third time, and the mining rewards dropped to 6.25 Bitcoins. The next halving will happen in 2024, and the mining rewards will reduce to 3.125 Bitcoins per mined block.

Why is Bitcoin halving significant？

The significance of Bitcoin halving is multifaceted. It represents Bitcoin's approach to creating a synthetic form of inflation. Unlike traditional fiat currencies, where central banks can print more money, causing inflation, Bitcoin has a predetermined supply capped at 21 million. By halving the mining reward, Bitcoin makes sure its issuance rate decreases over time, slowing the influx of new coins into circulation.

Bitcoin halving events have historically been anticipated with much passion in the

cryptocurrency

world. Due to the reduced supply, many believe these events have influenced dramatic price increases in Bitcoin's value in years like 2013, 2017, and 2021.

What are the ramifications？

Halving has a direct impact on the rate of new Bitcoin entering circulation. By limiting the supply, basic economic principles suggest that if demand remains constant or increases, the price of Bitcoin should rise. Historically, halvings have often led to substantial price surges. For instance, after the 2012 halving, Bitcoin's price leaped from $12 to about $1,150 within a year.

However, these price spikes aren't without subsequent corrections. After surging to nearly $20,000 post the 2016 halving, Bitcoin's value eventually retracted to around $3,200 — a price still much higher than its pre-halving value but a stark drop nonetheless.

Halving also affects the mining community. With reduced block rewards, miners might find it less profitable to mine Bitcoin unless its price appreciates. Thankfully, Bitcoin's protocol has built-in mechanisms to adjust the mining difficulty level to ensure continued participation.

Impact of halving on Bitcoin

All the previous halving events have significantly impacted Bitcoin's price. Although past events do not guarantee future price patterns in the crypto market, the Bitcoin halving is yet to leave an isolated outcome. After every halving event, Bitcoin's price has recorded a new all-time high (ATH).

The price of Bitcoin rallied about 8,000 percent in the 12 months that followed the first halving in 2012. It was the first time Bitcoin crossed the $100 mark, climbing as high as $1,152 before retracing downwards. After the second rally in 2016, the price rose by almost 1,000%. The halving of 2020 initiated the bull run that established the current Bitcoin ATH, which sits at around $69,000.

The essence of Bitcoin halving

The Bitcoin halving was built into the protocol for several reasons. Knowing that Bitcoin is decentralized and not controlled by any single entity, the halving process manages the fundamental governance processes crucial to the cryptocurrency's sustainability.

First, Bitcoin's creator introduced the halving to maintain scarcity by slowing the rate of new coins entering circulation. As the amount of new coins entering the network reduces, demand for the cryptocurrency will increase over time. That way, Bitcoin's price would respond to the limited supply by appreciating over time.

Bitcoin halving is also a mechanism to control inflation and implement a monetary policy for the cryptocurrency. The algorithm governing the creation of new Bitcoin is transparent and automatically controls the inflation rate.

The Bitcoin halving also makes sure miners continue to receive rewards for maintaining the Bitcoin network. Although the block rewards reduce, the incentive remains. Alongside block rewards, miners earn fees paid through Bitcoin transactions. The mining process and its reward system help to enhance Bitcoin's decentralization and security.

When will the Bitcoin halvings stop？

Bitcoin is finite, meaning there is a limit to the amount of Bitcoin that will ever exist — which is 21 million coins. Since Satoshi Nakamoto tied the halving to Bitcoin mining, it means there is a timeline for the halving events. From calculations, we expect the last Bitcoin halving to happen in 2140.

How does the halving affect Bitcoin miners？

Bitcoin miners are the backbone of the blockchain's network. They use computers or mining hardware to process and validate transactions on the Bitcoin network. Miners run Bitcoin nodes that contain copies of the blockchain. They engage in a process that consumes time and energy to solve encrypted mathematical computations. The mechanism behind this process is called the proof-of-work (PoW) consensus algorithm.

Bitcoin mining is a competitive process, and miners with the highest processing power tend to compete better and discover blocks faster. As a result, the mining sector of the Bitcoin industry grew significantly over the years and focused on regions with cold weather and cheap electricity. The cold weather is suitable for the optimal operation of computer processors, while the low electricity cost targets the profitability of the exercise.

What used to be a venture for miners who ran nodes using simple graphic processing units (GPUs) is increasingly becoming an exclusive exercise for those who can afford powerful rigs with multiple processors.

Projections for the next halving

After the 2020 Bitcoin halving event, the cryptocurrency's price rallied to set new ATHs. With the fourth halving not far away, Bitcoin's price is adjusting and preparing for the next bull cycle.

As Bitcoin prepares for the next halving event, it's crucial to note that past performances do not guarantee future results. Therefore, we encourage investors to research independently, even though the indicators suggest an imminent bull run for the flagship cryptocurrency.