Bitcoin halving is a periodic event that occurs after every four years and reduces the mining reward by half, thus cutting the supply rate of new Bitcoin by 50%.
Bitcoin supply is fixed at 21 million. Over 19 million Bitcoins are circulating, leaving barely 2 million to be mined.
One of the critical aspects of Bitcoin’s monetary policy design is the so-called “Bitcoin Halving,” a mechanism that regularly reduces the supply of Bitcoin.
At PlasBit, we believe that understanding the fundamental features of Bitcoin is healthy for Bitcoin investors. In this article, we will take a deep dive into Bitcoin halving. However, we will first look at the basics of Bitcoin and Bitcoin mining to enable a proper understanding of the subject.
Basics of Bitcoin and Bitcoin Mining
Bitcoin is a digital currency based on a decentralized peer-to-peer network. Unlike conventional currencies, Bitcoin is not controlled by any central authority, such as a central bank or a government.
While Bitcoin users require a wallet, cards, and transfer services to transact, no intermediary controls the transactions. For example, at PlasBit, we offer a wallet to receive, store, and send your Bitcoin assets. However, we do not manage those transactions as banks do the transactions by their account holders.
Instead, Bitcoin transactions are maintained in a public ledger called the blockchain, managed by a network of computers called nodes. The blockchain network is transparent and secure, allowing any user of the Bitcoin network to verify transactions.
Bitcoin mining is the process that facilitates transactions on the Bitcoin network. Mining helps secure the network by verifying the transactions before recording them. In return, miners are rewarded with new Bitcoins.
What is Bitcoin Halving?
Bitcoin halving or “the halvening” is a periodic event where the reward for mining bitcoin is cut by 50%, thus reducing the number of bitcoins entering circulation by half. Bitcoin halving occurs after every 210,000 bitcoins, approximately every four years. The process will cease once the maximum supply of 21 million bitcoins is achieved.
History of Bitcoin Halving
When Bitcoin was first established, miners were paid 50 BTC for one block. The incentive attracted early investors to mine the network even though it was still being determined how successful Bitcoin would be. Besides, the mining difficulty had not increased, and miners could perform the process even with a CPU.
Four years later, in 2012, the first halving occurred, reducing the reward to 25 BTC per block. The second halving followed in 2016, reducing the price per block to 12.5 BTC. The most recent halving came on May 11, 2020, reducing the mining reward to 6.25 BTC. The next halving will take place in 2024. This cycle will take place until around 2140, when the maximum supply of 21 million BTC is expected to be reached.
Why Does Bitcoin Halving Happen?
Bitcoin halving process was coded into Bitcoin blockchain by the pseudonymous founder, Satoshi Nakamoto. The halving would constantly reduce the supply of Bitcoin towards the maximum supply mark, making Bitcoin a profoundly deflationary currency.
Implications of the Bitcoin Halving Event
Bitcoin halving is one of the significant events that every Bitcoin network user should watch out for. Whether you are a miner or own a few Bitcoin assets in your PlasBit wallet, the halving will likely affect your business.
Bitcoin Halving and the Price of BTC
A halving cycle reduces the supply of the available Bitcoin, causing an increase in the value of Bitcoin. Therefore, the event usually triggers a significant change in the Bitcoin price.
When the first halving took place, the price of Bitcoin was slightly above $10. One year later, the price had increased 100-fold to around $1000. The second halving occurred on July 9, 2016, during which the price of Bitcoin fluctuated between $500 and $1,000. However, digital currency prices shot up to over $2550 by July 2017. The digital currency crossed a $19,000 record mark in December. Further, Bitcoin sold at around $8,780 during the most recent halving in May 2020. The market entered a bull run soon after the halving event, hitting a record high of $61,000 in April 2021.
Other Factors that Can Affect Bitcoin Prices Post Having
Of course, other factors must be considered when analyzing Bitcoin prices post the halving boom. These factors include the hype by the media, which tends to give Bitcoin more coverage during such events, and the increasing real-world use cases of cryptocurrencies, including Bitcoin.
However, considering the history, the Bitcoin halving events have proved a driver for long-term bullish markets for Bitcoin.
Bitcoin Halving and Bitcoin Inflation
Inflation is the loss of purchasing power of a currency, in this case, Bitcoin. However, Bitcoin was designed with halving to help fight inflation, making it a deflationary asset. For example, the inflationary rate of Bitcoin dropped from 50% in 2011 to 12% in 2012 following the first halving event in 2012. The second halving was followed by a drop in % inflation rate to 12% in 2016. Currently, Bitcoin’s inflation rate stands at 1.777%.
Halving and the Viability of Bitcoin Mining
Bitcoin’s increasing value makes mining lucrative to many investors, even when the number of coins rewarded per block decreases with each Bitcoin halving. For example, Bitcoin has gained over 47 million percent return on investment since it was first valued.
However, other factors influence the viability of Bitcoin mining. For example, the high cost of electricity for powering mining computers would require a significant rise in Bitcoin price for mining to remain profitable when the mining reward is cut by half. Miners will only be able to stay in business if the price rises significantly to counter the decreasing amount of reward.
Other Factors that Could Affect the Viability of Mining
Additionally, Bitcoin miners need to be highly efficient to remain competitive. Therefore, they leverage new technology, including powerful mining computers such as ASICs. Unlike when Bitcoin was first established, it is impossible to mine using a PC and GPU profitably. Miners employ cutting-edge technology to generate more hashes while lowering the overhead cost.
Another factor to consider is crypto legislation. Even though Bitcoin is a decentralized currency, government actions can influence its legality and taxation. The crypto legal environment constantly changes, with many countries laying regulatory frameworks for digital assets.
This may include taxing miners and various cryptocurrency transactions, limiting or banning the use of cryptocurrencies in certain regions, and even accepting Bitcoin as a legal tender within a jurisdiction. Such factors often affect the adoption of Bitcoin, which further affects its price.
Furthermore, the increasing interest in Bitcoin by various countries and their economies may affect Bitcoin’s price. For example, the volume of Bitcoin transactions would increase if more stores, SMEs, and even large institutions adopted Bitcoin and the blockchain.
The Halvening and Bitcoin Hash Rate
Historical evidence suggests that Bitcoin halving affects Bitcoin’s hash rate. A hash rate measures the computational power of a blockchain network. It is determined by the number of guesses (SHA256 computing operations) made per second during the mining process.
The hash rate determines the mining difficulty and security of a blockchain network. An increase in the hash rate implies an increase in the number of miners, which indicates a faster and more secure network.
What happens if many miners quit mining on the network simultaneously? In that case, the network will experience a bottleneck for a moment, making it vulnerable to attack by malicious users.
Many people think that Bitcoin halving can cause the reaction described above since it cuts the reward for mining by half. However, that is not the case considering the evidence from past halving events. Bitcoin’s hash rate dropped slightly between December 2012 and mid-February 2013, following the first halving in 2012. However, both Bitcoin’s hash rate and profitability increased afterward.
A similar trend occurred in the aftermath of the second halving in 2016. However, during this time, the hash rate continued to increase steadily while the profitability of Bitcoin took slightly longer, approximately one year, to manifest.
The Next Bitcoin Halving
The rate of introducing new Bitcoins to circulation will again slow in the next halving event. Around 900 bitcoins are mined and entered into the network’s daily circulation.
When is the Next Bitcoin Halving?
Bitcoin algorithm dictates that the next Bitcoin halving will occur after the 210,000th block is mined since the last halving. The exact date for this event has yet to be determined, but we anticipate it will happen in May 2024. That would be approximately four years since the last halving event. The next Bitcoin halving will slash the payout for mining to 3.125 BTC per block.
What are the Possible Effects of the Next Bitcoin Halving?
Previous trends indicate that price volatility often surrounds the halving. While many factors affect the price of Bitcoin, the digital asset’s price trend is often bullish after the initial volatility that follows a Bitcoin halving event.
However, miners must exercise caution. While the scarcity of digital assets may trigger a price increase, reduced mining activity and rewards may level the price off. Therefore, at PlasBit, we believe it is safer to bet on the overall growth of the Bitcoin network instead of focusing on a single event.
Apart from miners, other Bitcoin investors must also prepare for the upcoming Bitcoin halving event. With the prices expected to shift significantly around the havening event, you should research the market well and make more informed investment moves. At PlasBit, we offer all the necessary tools to monitor the market. These include a highly effective crypto calculator, crypto mining calculator, and crypto profit calculator.
Managing Crypto Funds from Mining
As a miner, you need secure and efficient Bitcoin services that ensure efficient management and transfer of your assets. At PlasBit, we provide a safe and convenient wallet, Bitcoin transfer service, and Bitcoin cards to manage and move your assets anytime, anywhere.
Storing BTC Asset
It would help to have a safe and easy-to-use crypto wallet to store your Bitcoin assets received as a mining reward. We offer state-of-art security features to protect users’ funds in the PlasBit Wallet. We keep 100% of our user’s Bitcoin funds in cold storage, where they cannot be hacked. We are also ISO/IEC 27001 certified, using the highest standard security infrastructure to minimize risks for our clients and investors. Additionally, we offer multiple ways to cash out your Bitcoin assets, including bank transfers and debit cards.
Spending Your BTC
PlasBit Card enables you to easily track, manage, and spend your digital funds in a safe environment. You can access your transaction history anytime. Additionally, you will receive a notification whenever a transaction is made in your wallet. Our cards support multiple currencies, allowing you to pay in local currency anytime. The card also lets you track your expenses and control how you spend your digital funds.
Transferring Your BTC
At PlasBit, we offer efficient moving of digital funds globally. You can transfer your Bitcoin online using our fast and secure service. PlasBit Transfers services cover more than 130 countries, including the United Kingdom.
