Not many events in crypto are as significant as the Bitcoin halving, Bitcoin currently has a market cap of $1.35T and has garnered the interest of institutional players courtesy of the approval of the BTC spot ETF giving birth to positive sentiments around the world's most valuable cryptocurrency.
This can be said to be one of the factors that propelled Bitcoin to an ATH of $73,750 on March 14th officially ushering in a bull run in the crypto market.
Now another major crypto event is just around the corner and it is the Bitcoin halving.
Bitcoin halving is an event that sees the number or quantity of new Bitcoins created reduced by half. When Bitcoin halving occurs the quantity of new Bitcoin that miners can generate from mining is slashed by half.
At the moment (a few days before the next halving) miners are currently generating 6.25 new BTC per block after Bitcoin halving this number will be slashed in half and miners from then on can only generate 3.125 new BTC per block.
This event was systematically embedded in the Bitcoin network by the pseudonymous creator Satoshi Nakamoto.
Bitcoin is secured by the Proof-of-Work consensus mechanism, here miners compete to add new blocks to the blockchain by using computational power.
When miners validate transactions put them in blocks and add them to the blockchain network they are given “block rewards” which are new BTC.
This is how new Bitcoins are created, they are a reward given to miners for validating transactions on the network. Bitcoin halving reduces the block
reward Bitcoin miners receive by half.
Halving happens every 210,000 blocks which takes the blockchain network about four years to mine, therefore Bitcoin halving happens roughly every four years.
At inception, the first block reward was 50 bitcoin before it was slashed to:
25 bitcoins on Nov. 28, 2012,
12.5 bitcoins on July 9, 2016,
6.25 bitcoins on May 11, 2020.
The next halving is expected to occur around April 20th 2024, when the block reward will fall to 3.125 BTC.
Bitcoin has a maximum supply of 21m currently its circulating supply is 19.6m meaning that over 90% of the total amount of BTC that can ever be in existence has already been mined.
Currently, about 900 BTC are mined per day, theoretically speaking the last BTC is expected to be mined in the year 2140 which is also the year of the last Bitcoin halving.
Some of the key effects of Bitcoin halving include:
Reduces Inflation:
When halving occurs the supply of new BTC entering circulation is reduced by half and demand is mostly likely to either remain constant or will not reduce as much as supply (50%) this therefore creates scarcity supporting the argument of Bitcoin as a store of value.
Demand and Speculation:
Although Bitcoin wasn't intended to be an investment but rather a medium of exchange/payment method that eliminates the need for central authority.
The upward price trajectory of BTC over the years coupled with its limited supply and deflationary nature has made room for speculation and investment.
With Bitcoin halving being an event that many consider to be bullish this will create room for more speculation as retail and institutional investors may want to get in before the event is priced in.
Mining
Miners are the people, groups or entities that secure the network by validating transactions they do not only get block rewards they also receive transaction fees.
However, if the block reward they receive is reduced by half it becomes less profitable if the price of BTC does not increase.
To prepare for this some major mining firms increase production capacity in other to remain competitive and generate the liquidity necessary to finance their operations.
For small miners who can't expand their capacity, this generally means lower block rewards and can only be offset if the price of BTC appreciates.
Bitcoin halving is simply an event that reduces the supply of new BTC entering circulation, it happens when the block reward received by miners is cut in half.
This event takes place roughly every four years and since new supply is reduced when it happens people consider it as a bullish event.
The next Bitcoin halving is scheduled to happen around April 20th 2024. Keep track of the countdown here.
[Author’s Note: This article does not represent financial advice, everything written here is strictly for educational and informational purposes. Please do your own research before investing.]
Author: Godwin Okhaifo
