The Bitcoin halving is an event on the Bitcoin protocol, in which the block reward issued to miners decreases by half at programmed intervals.
Bitcoin has a fixed total supply of 21 million BTC, with new coins issued periodically by its protocol as mining rewards. This reward is a set amount determined by the protocol itself.
But the reward amount changes periodically; it decreases by half every 210,000 blocks. This decrease is known as the halving, and takes place roughly every four years.
The point of the halving is to decrease the number of new coins entering circulation on the Bitcoin network. This reduces the rate of inflation of bitcoin: a decrease in its supply leads to a corresponding increase in demand for the asset. This system, together with a capped total supply, is why bitcoin is referred to as a deflationary asset.
For each new transaction block added to the Bitcoin network by miners, the protocol issues a “block reward”. This reward has two functions: it incentivizes miners to keep securing the network by reaching consensus, and it serves as the supply source of new Bitcoin into the network.
When the block reward is decreased by half, it means the miners themselves have only half the incentive to keep working. The pool of miners will therefore be forced to become more efficient, and will also decrease as many miners simply give up.
Meanwhile, the reduction in supply of BTC means the demand for bitcoin as an asset will increase.
The halving takes place after every 210,000 blocks. This equates to approximately once every four years.
There have been three previous Bitcoin halving events: the first on 28 November 2012, the second on 9 July 2016 and the most recent on 20 May 2020.
Although it’s impossible to be precise, the next halving is slated to occur on 19 April 2024. This halving event will see the block reward reduce from the current 6.25 BTC to the new rate of 3.125 BTC.
The objective of the halving is to limit the inflation of BTC – in other words, it aims to help bitcoin maintain a steady value by decreasing its supply. However, this is only one of many factors that might impact the price of bitcoin.
Other factors include
For example, the price of Bitcoin took a nosedive after both the Celsius collapse the demise of FTX, showing just how significant crypto market events are to the price of individual cryptocurrencies.
So to summarize, the halving is just one of many elements that determine the price of BTC. It cannot be used to predict future price movements.
The Bitcoin White Paper is a detailed explanation of the rules that govern the Bitcoin network. While there is no express mention of a “halving” event, the White Paper does set out how the network will manage the supply of new Bitcoin. Specifically, it explains that new BTC will be issued via periodically decreasing mining rewards. The name “halving” itself was generated by the community.
The halving will mean different things for different people, and it depends on your relationship with Bitcoin.
If you’re a HODLer, the halving is an event that should work in your favour over time. By constantly reducing the supply of Bitcoin, the halving is key to Bitcoin’s status as a deflationary asset.
If you’re a miner, the halving may mean it’s more difficult for you to turn a profit. The chances are you’ll need to find ways to make your mining operation more efficient. Some may even stop mining altogether, as the cost benefit ratio becomes less favourable.
No matter what your perspective is, the halving is an immutable characteristic of the Bitcoin network. It’s sure to generate a flurry of media interest and new entrants to the space.