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Bitcoin Halving: What It Is and When It Will Happen

Read 4 min
Medium
KEY TAKEAWAYS:
— In April 2024, the highly-anticipated Bitcoin halving event will take place.

— This four-yearly event decreases the mining reward by 50% as intended by the Bitcoin network’s protocol.

— The halving event causes Bitcoin to become more scarce over time, giving it a deflationary premise.

— While no guarantee for the future, historically Bitcoin halving events have led to increases in the coin’s market value.

A major event in Bitcoin history is upon us soon, namely the Bitcoin halving event. Taking place in April 2024, it’s a much-discussed topic as many see the deflation it brings as a bullish sign for the leading cryptocurrency.

What is the Bitcoin halving?

The Bitcoin halving is the event where the Bitcoin network’s mining block reward, also known as the coinbase transaction, is cut in half. This occurs every 210,000 blocks or roughly every 4 years, with the next halving scheduled for April 2024.

Bitcoin’s halving event is always a highly anticipated moment in the network. Primarily because of the unique nature of the public network’s supply and emission schedule, Bitcoin halving events draw all kinds of speculation on how it will impact the Bitcoin market price and long-term economic incentives for miners. 

When Will The Next Bitcoin Halving Take Place

The next Bitcoin halving is expected to occur in April 2024. This time, the current block reward will reduce from 6.25 BTC to 3.125 BTC. It will be the 4th in the largest cryptocurrency’s history, with the first event reducing the block reward from 50 to 25 BTC in 2012, the second from 25 to 12.5 BTC in 2016, and the third from 12.5 to 6.25 BTC in 2020.

Understanding the Bitcoin Halving: How Does it Work

To understand the halving, let’s first look at how miners receive their Bitcoin rewards.

Firstly, it’s important to note that as a Proof-of-Work network, Bitcoin relies on miners to validate transactions and include them in blocks. To do so, they must run specialized mining hardware to participate in a lottery-like race to find the solution to the puzzle.

Using this consensus mechanism, the winning miner broadcasts the next pending block to the network, which is then validated by both the network of crypto nodes. Once the block is approved, it’s added to the blockchain. Each successful block mined incurs a reward, which currently yields 6.25 BTC. Miners receive these rewards on a per-block basis. And it’s this number that determines the rate of emission of Bitcoin (BTC) that flows into the network.

Bitcoin’s Halving Event: Why It Matters

The Bitcoin halving is important mainly due to its knock-on effects. To understand why it matters, we need to explore Bitcoin’s supply and deflationary model.

Bitcoin has a capped supply

Bitcoin’s total supply is capped at 21 Million. At the time of writing, over 93% of that supply is already in circulation, totaling around 19 Million BTC. On average, there are 144 blocks mined each day, resulting in 900 new BTC per day. That leaves its inflation rate at about 1.8% today. This rate is much more favorable than most fiat currencies, meaning your Bitcoin does not lose its value over time in the same way your Dollars or Euros might.

The Bitcoin Halving Encourages Deflation

Every four years, the block reward decreases by 50%. This ensures that less and less new Bitcoin is created. This process will continue until the year 2140 when the very last BTC will be produced.

Using these mechanisms, it’s certain that Bitcoin will become more scarce over time. This is contrary to fiat currencies, which governments or central banks print more of whenever they like. As you might notice with gold, scarcity can give an asset a much greater value. Thus Bitcoin was designed in a way where it’d be more likely to increase in value over time, rather than find itself subject to inflation like fiat currencies.  This is the basis of the stock-to-flow ratio principle.

What Will the Bitcoin Halving Do?

Since the awarded BTC for miners decreases every four years, miners need the price per Bitcoin to increase to keep their business alive.

Interestingly, miners account for a specific portion of selling pressure on Bitcoin’s market price. This is because they typically sell their accumulated BTC to buy and maintain the equipment they need. This could include hardware equipment, like ASICs, and even paying for overhead costs such as electricity.

As the block reward diminishes every four years during the halving event, the selling pressure by miners should decrease on Bitcoin markets. This may cause Bitcoin’s price to swing upwards. Models projecting Bitcoin’s potential market impact from the halving event often rely on its past price action. While no guarantee for the future, Bitcoin price has historically responded positively to halving events. 

That said, whenever something significant happens, it can also cause volatility. Staying vigilant and doing your research will guarantee that whatever happens, you know what to do.


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