What Is a Halving?
Key to the infrastructure and monetary policy of bitcoin, a Bitcoin halving is a new BTC minting being cut in half according to a predetermined schedule.
Updated June 23, 2022 • 4 min read
When the Bitcoin network first launched, miners earned 50 bitcoin (BTC) per block, and the first Bitcoin halving in 2012 reduced the block reward to 25 BTC per block. From there, the 2016 halving event cut rewards to 12.5 BTC per block mined, and the crypto halving that took place in May of 2020 once again slashed this number down to only 6.25 new BTC per newly mined block. This process will continue until all 21 million BTC are mined, meaning that the pace of Bitcoin’s supply growth will continually decrease over time.
Bitcoin’s Total Supply Is Driven By “The Halving”
“The halving” — also referred to as “the halvening” — is a popular term used to describe the event that triggers a change in Bitcoin’s emissions schedule. This is when the pace of new bitcoin (BTC) creation is cut in half on the Bitcoin blockchain. In order to understand what this means, it’s important to review how Bitcoin validates transactions and issues new BTC.
The Bitcoin network’s Proof-of-Work (PoW) consensus mechanism relies on a network of miners (i.e. network validators) that use specialized hardware to solve complex mathematical equations in the form of cryptographic hashes. Every block of transactions on the Bitcoin network generates a unique mathematical equation that must be solved in order for that block to be validated and recorded on Bitcoin’s blockchain ledger. Therefore, the process of solving these equations underpins the entire network’s operational efficiency and security.
Each consecutive block created on the Bitcoin network generates an incrementally more complex equation for miners to solve, which makes this form of PoW consensus computationally difficult and energy-intensive. As a result, miners need to be incentivized to participate in this process, meaning that every time a miner successfully solves a block’s mathematical equation before their peers and produces a 64-character hash “transaction signature” that is added to the ledger, the miner is rewarded with newly minted BTC.
This process of mining BTC is the only way new BTC can be minted (issued) into existence. It’s important to recall that bitcoin was designed to be a deflationary cryptocurrency with a capped total supply, and its crypto halving schedule is the primary mechanism through which this deliberate supply restriction is achieved. After every 210,000 blocks mined on the Bitcoin network, the number of new bitcoin that miners receive for each successfully mined block is permanently reduced by 50%.
Let’s take a look at Bitcoin halving history. When the Bitcoin network first launched, miners earned 50 BTC per block, and the first Bitcoin halving in 2012 reduced the block reward to 25 BTC per block. From there, the 2016 halving event cut rewards to 12.5 BTC per block mined, and the BTC halving that took place in May of 2020 once again slashed this number down to only 6.25 new BTC per newly mined block.
Since these Bitcoin halving countdowns are tied to Bitcoin’s block count instead of an external timeline, the specific dates when future Bitcoin halvings take place cannot be accurately predicted in advance. That being said, historically it has taken roughly four years to complete each 210,000-block cycle, and the next BTC halving is expected to happen sometime in early 2024. This process will continue until all 21 million BTC are mined, meaning that the pace of Bitcoin’s supply growth will continually decrease over time.
Most Bitcoin halving charts show the last fractions of BTC being mined sometime in 2140, and at that point miners are expected to be rewarded solely with user transaction fees in order to ensure that they still have an incentive to keep the network running.
Why Does a Bitcoin Halving Exist?
Bitcoin’s deflationary design is central to the cryptocurrency’s appeal. Satoshi Nakamoto, the pseudonymous creator of Bitcoin, was opposed to centralized currencies and payment networks and set out to create a digital currency with a finite, algorithmically enforced market supply.
Bitcoin’s mining process and reward system enables a decentralized way to validate and execute transactions, while ensuring that the supply of bitcoin is hard-coded to be both predictable and deflationary. Outside of Bitcoin, other cryptocurrencies such as Litecoin follow crypto halving schedules of their own, but it’s worth noting that not all cryptocurrencies are deflationary or adhere to a consistent supply growth curve. That being said, every serious blockchain project takes a thoughtful approach to its cryptoeconomic structure.
What Happens After Each Bitcoin Halving?
The most immediate effects of the halving are a reduction in bitcoin miner profitability and a slowdown in the rate of BTC’s total supply growth. These outcomes are effectively two sides of the same coin, since the BTC rewards miners earn for each successfully mined block are the means through which bitcoin’s total and circulating supply increases. Since the reduction in mining rewards occurs immediately after each 210,000-block cycle, each of these crypto halvings triggers an instantaneous drop in miner revenue. As a result, the number of Bitcoin miners will likely continue to drop as the economic rewards for mining become less attractive, and smaller, less efficient miners are unable to generate a profit through bitcoin mining.
Past Bitcoin halving dates have been followed by a period of price volatility for bitcoin and the overall crypto market. It remains to be seen how future BTC halvings will impact price movements, particularly as interest shifts to other crypto projects beyond Bitcoin and institutional crypto investors leave larger footprints within the cryptosphere.
Predictable Crypto Halvings in an Uncertain World
Early 2022 saw the 19 millionth bitcoin (BTC) mined into existence, leaving just 2 million left to be released as mining rewards. It’s fitting that the May 2020 Bitcoin halving occurred during a period of significant monetary inflation, with the U.S. and other countries printing trillions of dollars’ worth of fiat in order to stave off economic crises related to COVID-19 lockdowns. While it remains to be seen whether these crypto halvings will allow Bitcoin to live up to Satoshi Nakamoto’s vision of a truly accessible, globally adopted digital currency, the BTC halving is a key component of Bitcoin’s success to date, and a steady, algorithmically-ensured event.
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