Bitcoin is fixed and immutable. Hence, there will only ever be 21 million Bitcoins. Presently over 19 million bitcoins have been mined, meaning there are just less than 2 million Bitcoins left to be mined. The Bitcoin protocol automatically reduces the number of new coins issued with each new block in a process called halving. Every four years, a bitcoin halving occurs to prevent the cryptocurrency from becoming less valuable over time. Bitcoin Halving is Explained.
Bitcoin Halving History
This showcases a list of Bitcoin halving dates in history. Even as demand rises, halvings reduce the rate at which new coins are created, reducing the available amount of new supply. This has some implications for investors because other assets with a limited or finite supply, such as gold, can experience high demand and push prices higher.
In the past, Bitcoin halvings have been associated with massive price increases. The first bitcoin halving cycle date, which occurred on November 28, 2012, resulted in a rise from $12 to $1,207 by November 28, 2013. The second Bitcoin halving occurred on July 9, 2016. The price at the time of the halving was $647, but by December 17, 2017, it had risen to $18,972. The price at the time of the halving was $647, but by December 17, 2017, it had risen to $18,972. The price then fell over the course of a year from that peak to $3,716 on December 17, 2018, a price that was approximately 575% higher than its pre-halving price.
On May 11, 2020, the most recent halving occurred. On that day, the price of bitcoin was $8,821. On April 14, 2021, the price of bitcoin reached $63,233 (a staggering 617% increase from its pre-halving price). A month later, on May 11, 2021, the price of bitcoin was $49,504, a 461% increase that appears to be more consistent with the behavior of the 2016 halving.
This four-year halving stage in bitcoin has tremendously shown a track record of price surges, and therefore, this continuous, four-year ongoing process is meant to increase the scarcity of bitcoin even as adoption increases, thus increasing its value.
What Bitcoin Halving means?
Bitcoin halving occurs when the reward for Bitcoin mining is divided in half. The halving policy was written into Bitcoin’s mining algorithm to combat inflation by maintaining scarcity and, as a result, push the price upward. The The halving cycle occurs every four years, or when 210,000 blocks have been mined.
In 2022, bitcoin miners will receive 6.25 bitcoins (BTC) for each successfully mined block. The last halving occurred in 2020, with the next halving scheduled for 2024 when the block reward will be reduced to 3.125. As the block reward approaches zero, the effect of each halving will diminish over time.
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The halving event is significant because it represents another decrease in the rate of new bitcoin production as it approaches its finite supply: the total supply of bitcoins is limited to 21 million. As of late August 2022, there were approximately 19.1 million bitcoins in circulation, with only approximately 1.9 million remaining to be released through mining rewards.
The reward for each block mined in the Bitcoin blockchain in 2009 was 50 bitcoins. After the first halving in 2012, it was 25, then 12.5, and finally 6.25 bitcoins per block as of May 11, 2020.
How Bitcoin Halving Works
In the process known as mining, a decentralized network of validators verifies all transactions. When they are the first to use complex math to add a group of transactions to the Bitcoin blockchain as part of the proof-of-work mechanism, they are paid 6.25 BTC.
6.25 BTC is currently worth about $148,000 at the current BTC price, which is a good incentive for miners to keep adding blocks of Bitcoin transactions and keeping them running smoothly.
These blocks of transactions are added roughly every 10 minutes, and the Bitcoin code requires that the reward for miners be reduced by half after every 210,000 blocks. This occurs roughly every four years and is frequently accompanied by increased Bitcoin price volatility.
Why is Bitcoin Halving Important
Understanding how bitcoin halving affects its price is a key factor in its importance. Since its inception in 2009, when it traded for pennies or dollars, the price of one bitcoin has risen steadily and significantly, reaching over $63,000 in April 2021.
Because halving the block reward effectively doubles the cost to miners, who are essentially bitcoin producers, it should have a positive impact on price because producers will have to adjust their selling price to cover their costs. Empirical evidence suggests that bitcoin prices rise in anticipation of a halving, often several months before the event.
Is Bitcoin Halving Good for Investors?
According to Bruce Fenton, CEO of fintech company Chainstone Labs, “One of the most important features of Bitcoin is its limited supply and issuance mechanism.” “Bitcoin provides certainty in an uncertain world. “The code, not people, decides how it is issued.”
According to Chris Kline, CEO of Bitcoin IRA, “Bitcoin’s production scarcity is what defines its finiteness, and when reward falls, supply is constrained.” “Increasing demand at a time when supply is constrained has a positive impact on price, which can make bitcoin appealing to investors.”
So halving generally results in increased prices for bitcoin due to reduced supply and surging demand, meaning it is good news for investors. Trading activity on the cryptocurrency’s blockchain increases in anticipation of the halving.
Bottom Line
Halving imposes synthetic price inflation in the cryptocurrency’s network and cuts in half the rate at which new bitcoins are released into circulation. The rewards system is expected to continue until the year 2140 when the proposed 21 million limits for bitcoin are reached. Thereafter, miners will be rewarded with fees to process transactions.
