Once every four years, the Bitcoin sphere is shaken by a major event: The Bitcoin halving. As the date of the next one draws nearer, these somewhat impressive, if not ominous words are being thrown around more and more. But, what does Bitcoin halving mean, really? Why does it need to happen? And what are its consequences?
In this article, we delve deeper into this important milestone in the history of the world’s first cryptocurrency: Bitcoin halving explained.
What is Bitcoin halving?
No, it doesn’t mean that half of the “digital gold” will suddenly vanish off the face of the Earth! While the impact of the next Bitcoin halving will certainly have a considerable effect on the digital currency, it only affects the tokens which have not been mined yet.
Bitcoin mining consists in adding transactions to the blockchain. Every time an operation is validated, a “reward” is released to the miners in the form of a set number of Bitcoins. The halving in question applies to this reward, which means that adding a block to the chain becomes half as rewarding every time Bitcoin halving happens. When the reward is cut in half, the pace at which mining takes place is slowed down significantly.
Why does Bitcoin halving happen?
The total supply of Bitcoin is not infinite. Once all 21 million tokens in existence have been mined, it will be the end of Bitcoin mining altogether. As the process has been relatively quick, there already are over 18 million Bitcoins in circulation and, every ten minutes, more are released.
In the early days of Bitcoin, the fixed supply didn’t translate into scarcity, the number of miners was significantly smaller than it is now, and the token’s value was negligible. However, Bitcoin was designed as a deflationary asset, which means that its scarcity (so long as it is actually utilized) participates in increasing its value.
What is the Bitcoin halving schedule?
Satoshi Nakamoto, the creator of Bitcoin, programmed the reward to decrease over time (every 210,000 blocks mined, to be exact) to increase the scarcity of the tokens predictably, but also keep the supply going until the year 2140. The Bitcoin halving schedule foresees a Bitcoin reward halving every four years until the supply is entirely exhausted.
Before 2012, one block granted miners 50 BTC. After the first Bitcoin cash halving, the reward dropped down to 25 BTC per block. Today, after the second halving, it is at 12.5 BTC per block.
How does Bitcoin halving affect its price?
Bitcoin halving charts show that the operation, thus far, has resulted in a price increase, leading many to speculate that the next Bitcoin halving should have a similar effect. As always with cryptocurrencies – whose volatility should never be underestimated – caution should be exercised before interpreting any precedent as an immutable rule. However, overall price increases have been observed during the years preceding and following the last two Bitcoin halving dates.
Anticipation itself accounts, in part, for the fluctuations in price. As for the logic pertaining to the halving itself, it does stand to reason that reducing the supply, if the demand remains unchanged, would result in Bitcoin’s price after halving naturally increasing.
With that said, the factors which affect the value of cryptocurrencies are numerous, varied and sometimes co-dependent. This means that any political, economic or environmental event could weigh in the balance.
Bitcoin halving history
There are only two Bitcoin halving dates in history, which makes it impossible to establish a truly reliable precedent. Nakamoto’s predictions did seem to come to fruition on these two occasions, though.
On November 28, 2012, the first Bitcoin halving surprised everyone when, as Nakamoto had hoped, the value of the currency started climbing throughout the following year. Its incredible ascension took it from $11 all the way to $1038 on November 28, 2013. This unprecedented spike cemented Bitcoin’s reputation which caught the attention of the media, never to be forgotten again.
When was the last Bitcoin halving?
The second and last occurrence of this now highly anticipated event was the Bitcoin halving of 2016. At that point, a similar bullish pattern was vigorously expected, but speculation didn’t seem to drive instantaneous results. On July 16, 2016, the price of Bitcoin was a $610, lower than it had been a short while before.
However, many argue that the effects of the Bitcoin halving in 2017 were the reason behind the 288.60% valuation increase it had accumulated by July of that year. Others claim that it was unrelated as the elation over the Bitcoin halving had already taken effect prior to the event itself.
When is the next Bitcoin halving?
As the Bitcoin 2020 halving date approaches and the block reward is about to drop to 6.25 BTC, the excitement is peaking once again. Expected on the week commencing on May 18, it promises to be, if nothing else, a psychological event. The Bitcoin halving effect on its price may even have already started. Since the beginning of the year, the original crypto asset has certainly gained back some of the value lost by the end of 2019, only to drop down further mid-March. Is Bitcoin halving, 2020 edition responsible?
As stated above, the factors which can influence Bitcoin’s price are legion. As the global pandemic the world has been facing continues to disrupt economy as we know it (among other things), hazarding predictions may be more difficult than ever.
What are the Bitcoin halving predictions?
Will Bitcoin halving increase the price of the crypto asset? While Bitcoin halving predictions abound, they fall outside the scope of certainty, as always when it comes to the fluctuations the crypto market experiences.
What history has proven is that Satoshi Nakamoto’s strategy to cement and sustain Bitcoin’s reputation has been successful thus far. What they may not have accounted for, however, are the various circumstances which are affecting the world, as well as the evolution of the crypto sphere in general. For instance, the effect of Bitcoin futures trading has been to stabilize the asset’s price as futures do not require the existence of actual Bitcoins to be traded, making the volume of BTC mined somewhat less relevant.
The difference between the amount of Bitcoin in circulation and being traded daily now and the situation back in 2012 – or even in 2016 – should not be ignored either.
Yet, as the date of the next Bitcoin halving draws nearer, anticipation is building and does play its own part in how the market is reacting.
With their profits cut in half, miners will need to be able to rely on ever more powerful machines if they wish to stay in the game, which may result in industrial mining becoming the norm. This has already begun, but with another halving about to happen, more “small miners” will likely give up on their activity. This will, no doubt, affect how Bitcoin is perceived by the community which could, in turn, impact its price.
If history repeats itself, the Bitcoin halving of 2024 will certainly be affected. Would a new price hike result in a systemic increase in value for Bitcoin every time the supply is reduced? Another question to ask ourselves is how Bitcoin halving can continue to influence its price when the supply of Bitcoin still to be mined is already becoming quite low.
Bitcoin trading is not an exact science, but it is a fascinating one. Whatever the results of the next halving may be, they are sure to be interesting!