Halving in blockchain, often called "block reward halving," is a predetermined event programmed into certain cryptocurrency networks, including Bitcoin, to control the issuance of new coins. This event occurs at specific intervals, typically every 210,000 blocks or approximately every four years.
This event makes it possible to limit the supply of a given cryptocurrency on the market and protect it from depreciation. Satoshi Nakamoto developed the concept of halving and was first implemented on the Bitcoin blockchain.
Today, the halving mechanism is used on many blockchains that use the proof-of-work (PoW) consensus mechanism, such as Bitcoin, Litecoin, and Monero. The concept of halving doesn’t work on other kinds of networks, where issuance control is achieved through smart contracts or implementing hard forks.
What is Bitcoin halving?
Bitcoin halving, or the "halvening," is a crucial event programmed into the Bitcoin network that occurs approximately every four years or every 210,000 blocks. It is a fundamental aspect of Bitcoin's monetary policy. It is vital in controlling the supply of new bitcoins entering circulation.
During a Bitcoin halving, the number of new bitcoins generated as rewards for miners is cut in half. Specifically, the block reward is reduced by 50%. Initially, when Bitcoin was launched in 2009, the block reward was set at 50 bitcoins. The first halving occurred in 2012, reducing the reward to 25 bitcoins per block.
The second halving occurred in 2016, reducing the reward to 12.5 bitcoins per block. The most recent halving happened in May 2020, reducing the reward to 6.25 bitcoins per block.
When is Bitcoin Halving in 2024?
The fourth Bitcoin halving is on the horizon and is expected to occur approximately on April 17, 2024.
Pinpointing an exact date is challenging since halvings are scheduled based on block height rather than fixed calendar dates. Block height signifies a specific position within a blockchain, measured by the number of preceding blocks.
When will the final Bitcoin halving occur?
This process will continue approximately every four years until the maximum supply of 21 million bitcoins is reached, which is estimated to occur around the year 2140. After this point, no new bitcoins will be created, and miners will be compensated solely through transaction fees.
The purpose of the halving is to control inflation and ensure that new bitcoins are introduced into the market at a decreasing and predictable rate. This scarcity model is designed to combat devaluation and maintain the integrity of Bitcoin's value proposition as a deflationary digital currency.
Why halving is necessary
As mentioned above, halving keeps a lid on cryptocurrency inflation by reducing the issuance of new tokens. Issuance is intrinsically limited by the algorithms of cryptocurrencies like Bitcoin, which has a finite, pre-programmed maximum token supply. Halving allows the supply of cryptocurrencies to grow gradually, which is significantly outweighed by increasing demand.
Even before the first Bitcoin halving, Vitalik Buterin explained the importance of the mechanism by comparing BTC with gold, which has been a globally recognized medium of exchange and store of wealth for more than 6,000 years thanks to its limited reserves and increasingly difficult mining.
How halving works on the Bitcoin network
Mining is the only way to create new bitcoins. They are issued to miners as a reward for mining new blocks in the network. The continuous issuance of BTC occurs at a pre-programmed, predictable rate, and the size of the reward given to miners for the work they do is also set in advance.
On the Bitcoin network, a halving event occurs every 210,000 blocks (it takes roughly 10 minutes to create a new block), or around once per 4 years.
Bitcoin’s total supply is set at 21 million BTC. Halving ensures that new coins are issued at a predetermined rate, and when all 21 million bitcoins have been issued, the process will stop.
There have already been three halving events on the Bitcoin blockchain:
- 28 November 2012;
- 9 July 2016;
- 11 May 2020.
The reward for mining new blocks has decreased from an initial 50 BTC to 6.25 BTC during this period. The next halving is expected to take place in April 2024, when the block reward will halve once again to 3.125 BTC.
The effect of halving on crypto prices
The halving events often generate significant interest and speculation in the cryptocurrency community, as they can impact supply dynamics and potentially influence the price of Bitcoin.
Halving usually pushes the prices of cryptocurrencies up. Demand for the token in question outpaces supply in the run-up to and after a halving event, causing value to grow. This is usually followed by a drop-off in prices. Many cryptocurrency market participants buy up coins before a halving in the hopes of receiving a good return, contributing to the price increase.
For example, after the first bitcoin halved in 2012, its price jumped from $12 to $1,000 by the end of 2013. After the second halving, which took place in 2016, the BTC price rose from $670 to $20,000 in the space of just a few months. Finally, at the time of the third bitcoin halving in May 2020, it cost $8,700 before rising to $63,500 by April 2021.
Looking at the three BTC halvings that have already occurred, we can say that its price tends to increase around six months before the halving, reaching its peak value within a year to a year and a half before the price drops.
How to secure your Bitcoins before the 2024 halving day
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According to experts, Bitcoin is the blockchain most heavily impacted by halving. For other networks, the process has a much lower impact on crypto values. Regarding the interval between halving events, the
The Bitcoin mining algorithm is designed to aim for a new block every 10 minutes. Variations in block mining times may slightly alter the time it takes to reach the next halving milestone. For instance, if blocks consistently average 9.66 minutes to mine, it would take approximately 1,409 days to mine the required 210,000 blocks.
FAQs About Bitcoin Halving
What is Bitcoin Halving?
Bitcoin Halving is an event in the Bitcoin network's protocol that occurs approximately every four years or after 210,000 blocks have been mined. It involves a 50% reduction in the rewards miners receive for processing transactions.
Why does Bitcoin Halving happen?
Bitcoin Halving is an essential component of Bitcoin's monetary policy. It is designed to control inflation and ensure a controlled and predictable issuance of new bitcoins, ultimately leading to a total supply cap of 21 million coins.
When was the last Bitcoin Halving event?
The most recent Bitcoin Halving event occurred on May 11, 2020, reducing the block rewards from 12.5 bitcoins to 6.25 bitcoins.
When will the next Bitcoin Halving occur?
Based on the current protocol, the next Bitcoin Halving is projected to take place in 2024. However, it's important to note that the exact timing can be influenced by factors like block mining times.
How does Bitcoin Halving affect miners?
Bitcoin Halving directly impacts miners, as it reduces their rewards by half. This means they receive fewer bitcoins for verifying and recording transactions on the blockchain.
Does Bitcoin Halving affect Bitcoin's price?
Bitcoin Halving is often associated with speculation and can impact Bitcoin's price. Historically, previous halving events have been followed by periods of increased price volatility.
What happens after the final Bitcoin Halving?
After the final halving event, which is projected to occur around 2140, no new bitcoins will be created. Miners will be compensated solely through transaction fees paid by users.
Why doesn't Bitcoin Halving happen exactly every four years?
While Bitcoin is designed to halve roughly every four years, actual halving events can be influenced by the variability in block mining times. This can lead to slight deviations from the four-year schedule.
What are the implications of Bitcoin Halving for long-term investors?
For long-term investors, Bitcoin Halving reinforces the scarcity aspect of Bitcoin. A decreasing supply of new bitcoins may contribute to upward pressure on prices, potentially making Bitcoin an attractive store of value.
Remember, investing in cryptocurrencies carries risks, and you must conduct thorough research and exercise caution before making any financial decisions.