All you need to know about Bitcoin halving.
Let's take a look at the bitcoin halving event and everything else.
Let's Dive in.
What is Bitcoin halving?
The issuing of new bitcoins is through the mining process. New coin issues are rewards for the miners who validate the transactions on the Bitcoin Blockchain. Every 210,000 blocks or approximately every four years, the reward decreases by 50%. This process is known as the "halving" and is in line with the Bitcoin protocol, as designed by Its creator Satoshi Nakamoto.
One key factor for the halving event is the limited supply of Bitcoins that will ever be in circulation. Once the network reaches its 21million coins limit, the Bitcoin network will stop issuing new coins.
Since its inception in 2009, there have been two halving events. The initial reward for miners was 50 Bitcoin for each block mined. It was then halved to 25 Bitcoin in 2012, and 12.5 Bitcoin in 2016 (the current reward), and the next halving is set to take place in May 2020, when the reward will be reduced to 6.25 Bitcoin.
What is a Block and Bitcoin Mining?
A block on the bitcoin blockchain network is a file that stores 1MB worth of bitcoin transactions. As more transactions occur, the number of blocks storing data on these transactions also increases, and the bitcoin blockchain increases in size.
As of Dec. 13, 2020, the size of the bitcoin blockchain is 308GB, compared to 4.52GB in 2012.
Miners are people who compete to add the next block to bitcoin’s blockchain network. Miners use powerful computers and solve complex mathematical problems to produce a 64-character hash key that locks the block. For doing so, miners are rewarded in the form of bitcoin.
Further Reading: All you need to know about Bitcoin.
Why do they happen?
The halving is to control the supply, if the coins are created too quickly to match demand, basic economic theory dictates that there will be a surplus in circulation, and their value would fall.
The production of new coins means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not rise as fast as demand, there will be deflation, and early holders of money will see its value grow.
"Coins have to get initially distributed somehow, and a constant rate seems like the best formula."
How It Works
For every 210,000 blocks mined, the reward for mining a block falls by half. For the first 210,000 blocks in bitcoin’s early days, the reward was 50BTC per block. By 2012 all 210,000 blocks were mined, and the reward decreased by half to 25BTC.
By 2016, the second set of 210,000 blocks was mined, and the reward dropped to 12.5BTC. The latest halving occurred in May 2020, marking the completion of 630,000 blocks, and the reward is now 6.25BTC per block.
It takes roughly four years to mine 210,000 blocks. Consequently, bitcoin halving usually occurs in four-year intervals. The next halving is expected to take place in 2024.
The Relationship Between Bitcoin Halving and Bitcoin’s Price
History suggests that there is a positive correlation between bitcoin halving and increases in the price of bitcoin. However, it should be noted that its price is not only affected by halvings and is dependent on several other factors.
The first halving: which happened in 2012, saw the Bitcoin price rise from $11 to $12. Within a year, the price increased to $1,100.
Second halving: In 2016, the bitcoin network completed 420,000 blocks, and the second halving occurred. Bitcoin fluctuated between $500-$1,000 for a few months and then shot up to $20,000 by December 2017.
Third halving: The third halving took place in May 2020, which marked the beginning of another bull run for bitcoin. When the halving occurred, bitcoin was trading at around $9,000. Today, in March 2021, bitcoin is trading at over$55k.
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