If you heard about Bitcoin halving and BTC per block, but don’t know the meaning of these terms and how they affect the price of the most famous and valuable cryptocurrency, don’t worry. In this article, we’ll dissect this topic in full detail.
Bitcoin halvings are the repetitive process of halving the block reward for bitcoin miners after every 210,000 blocks mined.
By reducing the Bitcoin block reward for mining as more and more blocks are mined, halving the volume of bitcoins ensures that the amount of bitcoins in circulation does not increase exponentially, which also increases the price of bitcoin on the crypto market.
What Is Bitcoin Halving and How Does It Work?
In order to understand what a Bitcoin halving is, it’s better to start by learning the fundamentals of bitcoin mining. Basically, you get a new bitcoin for solving code as a reward for mining bitcoin and processing others transactions in the blockchain network.
At the beginning of the Bitcoin story, its founder Satoshi Nakamoto laid out two rules for the bitcoin protocol. First, the total number of coins in the bitcoin network available is limited to 21 million bitcoins. The second is that amount of BTC per block cut in half every 210,000 block gets solved.
For every 210,000 blocks generated, the rewards per block are halved. In the early days of mining bitcoin, the block reward for the first 210,000 blocks was 50 BTC per block. As more and more blocks were mined and more bitcoins were put into circulation, the number of bitcoins per block for mining the first 210,000 blocks was halved to 25 BTC per block in 2012.
By 2016, the second set of 210 000 blocks had been mined, and the reward was reduced to 12,5 BTC per block. The last bitcoin halving took place in May 2020, when 630,000 blocks were completed, and the reward is now 6,25 BTC per block.
Approximately 210,000 blocks are mined in four years. The value of bitcoins, therefore, typically halves every four years.
When will the next Bitcoin halving occur?
Due to every 6 blocks are processed approximately every 6 hours and halving event occurs every 210,000 blocks, halving events occur every 4 years.
For those who do mining, it means that the reward for solving another bitcoin block will be cut in half. If today they get 5 bitcoins for every block after the halving event occurs, it will be only 2,5 BTC. And two times less after the next one.
It’s a well-known fact that there will be no more than 21 million Bitcoins, but it doesn’t mean that every bitcoin can be used as a storage of value or a means of transactions of products and services because about a third of all bitcoins are lost, and there is no way to recover them.
Why Bitcoin Halving events Occur
What’s the point of experiencing such a drastic change? Why did the inventor has programmed the Bitcoin halving into his invention? The answer lays in the realm of supply and demand law.
- The supply of bitcoins is estimated at 21 million units. Once 21 million is reached, the supply of new bitcoins will cease. Dividing the rewards for bitcoin in half ensures that with each block, the number of bitcoins that can be mined decreases, making bitcoins rarer, thus increasing demand and keeping high market value.
- Rationally speaking, the incentive for mining would decrease as each Bitcoin halving is completed. However, halving the amount of bitcoins per block is accompanied by huge spikes in the bitcoin exchange price, so that miners have an incentive to mine more new bitcoins, even though their rewards have halved.
- The rising price of Bitcoin will encourage miners to invest in more powerful computers, create more new bitcoins, and process more transactions. Conversely, if Bitcoin’s price does not rise and the reward per block is halved, miners may lose the incentive to process new blocks for the network and exchange transactions. This is because mining bitcoins requires the processing power of lots of computers and big amount of electricity, which can be an expensive process. This, in theory, implies a negative ecological potential that is being produced by bull run in CO2 emissions caused by complex calculations needed by the blockchain network.
- One of the creators of another cryptocurrency product, the Etherium project, Vitalik Buterin, wrote an article for Bitcoin Magazine explaining the necessity of a slow mining rate where he sad:
The main idea is to control the inflation rate.
The main disadvantage of traditional fiat currencies, which are controlled by central banks, is that the banks can print as much currency as they want. If they print too much of it, the laws of supply and demand ensure that the value of the currency will start to fall rapidly.
In contrast, bitcoin is designed to mimic a commodity such as gold. There is only a finite amount of gold in the world, and as each gram is mined, it becomes more and more difficult to extract the remaining gold.
Because of this limited supply, different types of precious metals have retained their value as an international medium of exchange and store of value for more than 6,000 years. Bitcoins are expected to have the same effect.
When to expect the next Bitcoin halving?
It is easy to calculate the timing of the next bitcoin halving. Given the fact that the time needed for calculating each block is 10 minutes, the next bitcoin halving event should occur around February of 2024.
In case you want to keep the hand on the pulse, some websites show the countdown to the next halving.
Nevertheless, some members of the Bitcoin community have found that, on average, a new block has been generated every 9 minutes and 20 seconds since the beginning of Bitcoin, rather than every 10 minutes as previously assumed.
It is 7% quicker than the estimated time of 10 minutes.
How do Bitcoin halvings events affect the price of the cryptocurrency?
Every time before bitcoin halving occurred, traders, investors, and miners feverishly search all the news coverage relating to cryptocurrencies trying to guess price movements this event will cause. To cut it short, nobody knows.
In 2016, one week after the halving occurred, the exchange rate of bitcoin against the US dollar had changed little. At the time of the halving, bitcoins were trading at around USD 650, and a week later, they were trading at around USD 675, so no significant price movements have occurred.
In addition, on 28 November 2012, when the 210,000 blocks were resolved, the first Bitcoin halving occurred. At that time, the price was $13.42, and halving the price did not seem to have a significant impact. In fact, shortly afterward, Bitcoin’s price jumped to USD 230. Many people refer to this as the Cyprus bailout.
However, there are two arguments: either the price increases or nothing changes.
Some argue that the market is well aware of the bitcoin halving, so it will come as no surprise and will not lead to significant changes in Bitcoin’s price.
Other people argue that the shortage of Bitcoin supply will certainly push the price up as the interest for new bitcoins increases. However, no one seems to think that halving the price will in any way reduce Bitcoin’s price.
What will happen after Bitcoin’s latest halving?
The year when the last Bitcoin halving is expected is 2140, after which the mining rewards for blocks will no longer be provided in bitcoin. After the last halving, miners will be incentivized by network user fees to continue processing transactions on the bitcoin blockchain network.
Bitcoin is designed to be valuable. Special rules have been established to make it valuable and avoid inflation.
There will only be a limited number of Bitcoins (21 million), and the inflation rate is low due to slowing down distribution and halving block rewards.
I hope this has helped you to better understand what halving is and why it is an important feature of the price of the bitcoin.
Perhaps you still have questions or comments. If so, please leave them in the comments section below.
In what year will the last bitcoin be mined?
According to the mathematics of Bitcoin halving, the final number of bitcoins in 2140 will be approximately 21 million (more precisely, 20999999999999999999,9769). However, any predictions might fail due to the high level of volatility of all things crypto and other reasons.
Will Bitcoin mining ever end?
No. As long as Bitcoin exists, mining will be necessary. Once all the bitcoins have been mined, miners will continue to be compensated by transaction fees.
How many bitcoins are mined per day?
The numbers are inevitably growing. On average, 144 blocks are mined per day (24 hours per day * 60 minutes per hour / 10 minutes per block), which means an average of 1,800 bitcoins per day.