It is surprising, but already in November 2023, some influencers start talking about the halving of Bitcoin: it is coming, or it is already here, they give advice or warnings. At BeFund, we pay a lot of attention to the technical aspects of blockchain technology, so statements like this make us smile. Well, we’re not going to give you financial advice, but we’re going to talk about halving. Knowledge is power, so it will be much easier for you to navigate cryptocurrency issues and more.
Bitcoin is half of Bitcoin?
The Bitcoin halving is a key event in the cryptocurrency ecosystem where the rewards for miners supporting the Bitcoin distributed network are cut in half. As you can see, the simplest definition of halving has nothing to do with reducing the amount of already mined coins or assets stored on your cryptocurrency wallets. Despite the increased interest in the community just before the halving, it has always existed: a process embedded in the network protocol by Satoshi Nakamoto himself, if you really believe in its existence. As you know, the Bitcoin network exists thanks to a large number of participants – miners, who support the operation of the system by solving complex cryptographic tasks, as a result of which new coins are mined. They are distributed among community members as a reward for providing equipment that consumes a lot of energy. Since the number of Bitcoins is known in advance, and the number of miners is constantly increasing, the protocol provides for a gradual reduction of the reward for each new block to balance the economic feasibility of the entire grand project.
How does it work?
It is known that each new block is added to the network approximately every 10 minutes . This is a mandatory condition of the Proof-of-Work consensus method, according to which all tasks must be solved and all nodes of the Bitcoin network must be synchronized. During the first years of the system’s existence, the reward to miners was 50 BTC, which is simply unthinkable by today’s standards. But there were fewer miners then, and the value of the coin was negligible. About four years after launch, the first halving took place, reducing the reward to 25.5 BTC. This caused the rate to skyrocket as the emission decreased as demand and interest in the cryptocurrency increased. Further halvings took place in 2016 and 2020. The remuneration was systematically reduced. That is, today it is only 6.25 BTC per mined block and is distributed proportionally among all miners who are lucky enough to participate in the calculations.
It seems that everything is clear, but now we want to draw your attention to the most interesting moment of the whole process, which is related to time. 10 minutes is an approximate amount that is needed more for people than for the system. The Bitcoin network works according to its own, so to speak, internal clock and closely monitors that the time to create each block remains a constant value. Therefore, if all miners cope with the assigned tasks faster, the blockchain makes it more difficult, so that there is no free time left until the end of the block closure. Similarly, if there is not enough capacity, these tasks are simplified. After every 2016 blocks, the algorithm audits the previous period and determines the difficulty of tasks for the next period, which is approximately 2 calendar weeks.
The halving occurs every 210,000 blocks, or roughly every four years. The last halving took place in 2020, when block 630,000 was added to the Bitcoin blockchain. Now we understand that premature onset of halving or its significant delay is impossible, because the usual time for every person does not play a special role here. The system balances itself independently and operates according to the algorithms embedded in it from the very beginning.
Each of you probably has a logical question: “When will the halvings stop?” According to the schedule, the emission of bitcoins will stop before the year 2140, since the total number of coins is known, limited and equal to 21,000,000. That is, there are still 116 years and 30 halvings ahead. The reward in the last cycle will be approximately 0.000000232 BTC. Right now it’s about 80 cents, but in the distant future even that could be a real treasure amid limited demand.
Consequences of halvings
The reward reduction does not affect the existing assets of Bitcoin holders, but it does reduce the total number of new coins entering circulation. This could cause the price of Bitcoin to increase due to a decrease in its new production, if the demand for this cryptocurrency remains stable or increases. At the time of writing, the value of the coin has already exceeded the all-time high of $40,000, so it is certain that the rate will increase even more from the end of April 2024.
Miners suffer the most from the halving, as their rewards for securing the network are cut in half, which can affect their profits and mining profitability. Therefore, if you do not participate in Bitcoin mining, then there is no need to worry.
Finally, let’s add that variations of halving are also present in other cryptocurrencies. For example, Litecoin, which was a fork of Bitcoin, also has cyclical halvings that occur every 840,000 blocks, which roughly equates to about four years. Ethereum also plans to move to the “EIP-1559” concept, which could reduce the number of new coins being created, reflecting a similar market impact to Bitcoin’s halving.
