What is the Bitcoin Halving?4 min read
Every four years the Bitcoin network experiences an event that reduces the rate at which Bitcoin (BTC) is created. This event has been deemed “the halving” and it’s a characteristic that helps define the value of Bitcoin.
To better understand the importance of the Bitcoin Halving, you need to understand the basics of Bitcoin mining in the Bitcoin network. Basically, new Bitcoin is created as a reward for miners after successfully mining a Bitcoin block. This is known as a block reward.
Unlike traditional paper currencies that can be endlessly printed, Bitcoin has a limited supply of only 21 million that will ever exist. Right now, there are over 18 million BTC mined and in circulation, but that doesn’t mean we’re going to reach the 21 million limit any time soon. Because of the design of the Bitcoin protocol which has been running since 2009, for every 210,000 Bitcoin blocks which occur on average every 4 years, the network initiates the “halving” and the production of new Bitcoin (the block reward) gets cut in half.
How much Bitcoin will miners receive after the next halving?
Currently, the block reward is 12.5 BTC so after this upcoming halving every new block will produce a block reward of 6.25 BTC. When Bitcoin was created, the block reward was 50 BTC per block. 50 BTC may seem like an extremely generous reward based on the current value, but when Bitcoin was created the value was much lower and nobody knew if the concept was going to be worth the cost of the computing power to maintain the Bitcoin blockchain.
The next halving is expected around May 16, 2020. The exact date is not 100% certain since the generation of new blocks can speed up or slow down. Currently, the Bitcoin network produces on average one new Bitcoin block every ten minutes.
Halving of the block reward is set to occur every 4 years until the last halving which is expected to occur sometime during the year 2140. When this happens, miners will no longer be able to collect block rewards but will still be able to collect fees for processing transactions on the network.
With this continuous reduction of rewards for miners in the Bitcoin network, the fee structure will certainly change to provide an incentive for miners to continue to power the network. Miners in the Bitcoin network do collect transaction fees and it’s likely that the transaction fees will increase to provide an incentive for miners to remain in the network and create competition for the lowest fees possible. So as the block rewards continue to decrease, pay close attention to the profitability of nodes processing transactions as they become the main compensation for miners.
Will the Halving affect the Bitcoin price?
Obviously, the main question about the halving is whether it will affect the price of Bitcoin but it’s impossible to know the answer. Historically speaking, the price of Bitcoin has increased after every halving, but the true value is deemed by the ratio of supply and its demand. Since the halving cuts down the production of new Bitcoin entering circulation, Bitcoin as an asset becomes even more scarce. If the demand for Bitcoin is still there or increases after the halving occurs, we’re sure to witness an increase in price.
The Halving of the Bitcoin block rewards is one of the core features of the Bitcoin protocol. Because of it, Bitcoin can retain the deflationary qualities that make it so valuable as a currency. The Halving prevents Bitcoin from becoming inflationary like a traditional paper currency that can be endlessly printed by central powers controlling the financial system. The value of Bitcoin increasing after the halving relies on multiple factors that drive its supply and demand but according to historical precedence, the halving is looking to have a strong effect on the value of Bitcoin.
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