What Is the Bitcoin Halving?
The Bitcoin halving, which happens about every four years, is an event that cuts the reward for mining Bitcoin transactions in half. Mining Bitcoin means lending your computer’s power (GPU) to process transactions and earning Bitcoin in return.
The halving automatically triggers after miners create 210,000 blocks.
The recent halving in 2024 made the reward 3.125 Bitcoin per block, compared to 6.5 Bitcoin before.
Blockchain Basics
The Bitcoin protocol was built on the blockchain. It works as a series of verified, fulfilled transactions that are then grouped together in “blocks.”
Each block connects, and all transactions are public, so the blockchain increases transparency while preserving personal data security.
The blockchain runs on Proof of Work (PoW) consensus, meaning transactions are verified by computers solving complex cryptographic problems – called miners. When a new block is mined, the owners of these computers are rewarded with Bitcoin.
How Does a Bitcoin Halving Work?
For a blockchain powered by PoW (i.e., the Bitcoin blockchain), Satoshi decided to code in the halving at the time of creation. This is triggered automatically after a set number of blocks have been mined.
Once another 210,000 blocks have been created, Bitcoin halving occurs, and creating Bitcoin blocks will reward miners with half as much. This process will continue until 2140 when the allocated number of Bitcoin has been created, which is 21 million.
(Singla et al., 2023)
Once this total supply of Bitcoin has been created, no further halving events will take place, and new Bitcoin won’t be created. This is still a ways away, as Bitcoins can be split into smaller denominations down to one “satoshi,” which is 0.00000001 BTC. The reward is 3.125 Bitcoin, and there are still 29 halving events left, predicted to finish in 2140.
Bitcoin Halving Historical Progress
Crypto halvings happen approximately every 4 years based on the hash rate or how fast the available computers verify transactions and create blocks.
The Bitcoin network was created in 2009 and initially awarded miners 50 BTC, now worth over $3 million. The rate at which new Bitcoin could be created made mining rewards easy to obtain, so almost anyone could participate in the mining ecosystem.
The first halving occurred on November 28, 2012. This triggered the first mining rewards decrease, going from 50 to 25 BTC per block. While this seemed like bad news for Bitcoin miners, it triggered the first crypto bull run.
The impact of the first halving became clear as prices surged significantly. The value of Bitcoin grew by over 8,000% to hit an all-time high of $1,000.
The second halving event came on July 9, 2016, reducing the Bitcoin block reward to 12.5 BTC. Prices dropped starting in December 2013 but mostly recovered after the second Bitcoin halving, reaching $920. From there, Bitcoin would hit new heights of $4,000 in August 2017.
After surviving the “crypto winter” of major price drops throughout 2018 and 2019, the third halving on May 11, 2020 led to a surge in Bitcoin’s price. The block reward was cut to 6.25 BTC, and prices continued to hit new ATHs until reaching $69,000 in late 2021.
(WisdomTree, 2020)
The next Bitcoin halving happened in April 2024, and the block reward was once again cut in half to 3.125 BTC. The Bitcoin price hit a new all-time high ahead of the halving, which was also driven by the approval of the Bitcoin ETF.
Transaction fees have increased significantly, and the lasting impact of this Bitcoin halving cycle remains to be seen.
Bitcoin Halving Effects
Price of Bitcoin
If we look at the history of the halving, prices have increased every time. The supply of Bitcoin being created decreases, and the market grows closer to maximum circulation.
Ahead of the new supply of Bitcoin dropping, investors may speculatively buy Bitcoin. This leads to the “pre-halving uptrend” in BTC price that’s been observed up to a year before each Bitcoin halving event, starting back in 2011.
Bitcoin Mining
Mining Bitcoin becomes less affordable and profitable with each halving, as it now requires twice as much computing power to earn the same block rewards.
In the best case, the costs of purchasing, maintaining, and powering equipment stay flat while earnings go down. Halving acts to balance the crypto mining industry. The increase in difficulty can cause larger players to leave the market, allowing smaller miners to rejoin the pool.
Overall, however, the Bitcoin halving schedule has made extracting Bitcoin more resource-intensive and has prevented most of the Bitcoin community from participating.
Conclusion
Bitcoin halving is an automatic function built into the blockchain network that cuts the reward for helping create new blocks in half. It decreases the number of new Bitcoins created, typically increasing the BTC price and making mining less profitable.
The recent Bitcoin halving made the block reward 3.125 BTC, and the next Bitcoin halving will come in approximately four years (2028).
Bitcoin halvings will continue until the maximum supply, 21 million, is created. This is predicted to hit in 2140.
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Singla, A., Singla, M., Gupta, M. (2023). Unpacking the Impact of Bitcoin Halving on the Crypto Market: Benefits and Limitations. Scientific Journal of Metaverse and Blockchain Technologies, Volume 1 Issue 1.
https://www.researchgate.net/publication/376181156_Unpacking_the_Impact_of_Bitcoin_Halving_on_the_Crypto_Market_Benefits_and_Limitations WisdomTree. (2020). Bitcoin Third Halving: What Does It Change?WisdomTree Market Insight, 2-3.
https://www.wisdomtree.eu/-/media/eu-media-files/other-documents/research/market-insights/market-insight—bitcoin-halving.pdf
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