Decoding
Bitcoin halving, or “halvening,” is a process that occurs every four years or after every 210,000 blocks are mined. It reduces the number of new bitcoins created and earned by miners by half, aiming to control the supply of new bitcoins entering circulation and potentially increasing the value of existing bitcoins.
This deflationary measure is built into Bitcoin’s design, mimicking the scarcity of precious metals like gold. The first halving occurred in November 2012, reducing the block reward from 50 bitcoins to 25 bitcoins per block. The second halving in July 2016 further reduced the reward to 12.5 bitcoins per block.
The most recent halving occurred in May 2020, reducing the reward to 6.25 bitcoins per block. Bitcoin halvings are closely watched events in the cryptocurrency community, as they can significantly affect supply and demand dynamics and potentially impact Bitcoin’s price.
The first reward was 50 bitcoin. Previous halving dates were:
Nov. 28, 2012, to 25 bitcoins
July 9, 2016, to 12.5 bitcoins
May 11, 2020, to 6.25 bitcoins
The next halving is expected to occur in April 2024, when the block reward will fall to 3.125 BTC.
As of March 2024, about 19.65 million bitcoins were in circulation, leaving just around 1.35 million to be released via mining rewards.
Basics of Bitcoin Mining
Bitcoin halving is a process that involves a network of nodes running Bitcoin’s software, each holding a complete history of transactions. Each node is responsible for approving or rejecting a transaction, ensuring it contains the correct validation parameters and does not exceed the required length. Each transaction is approved individually, which occurs after all transactions in a block are approved.
The blockchain’s stability and security are increased by adding more nodes. As of March 5, 2024, there were 18,830 nodes running Bitcoin’s code. While anyone can participate in the network as a node, not all are miners, as they need enough storage to download the entire blockchain and transaction history.
What Happens When Bitcoin Halves?
The term “halving” in the context of Bitcoin refers to a predefined event programmed into the Bitcoin protocol that occurs approximately every four years. During a halving event, the number of new bitcoins created and rewarded to miners for validating transactions and securing the network is cut in half. This reduction in the reward is built into the Bitcoin protocol as a way to control the issuance rate of new bitcoins and ensure a predictable and diminishing supply over time.
The halving mechanism is designed to simulate diminishing returns, similar to how scarce resources like precious metals exhibit decreasing rates of production over time. By reducing the rate at which new bitcoins are created, halving events create a form of artificial scarcity in the Bitcoin supply. This scarcity is theorized to increase demand for bitcoins, as the fixed supply combined with growing demand could potentially lead to higher prices.
Why do the halves happen less often than every four years?
The goal of the Bitcoin mining program is to find a new block every 10 minutes.
Some blocks take less than 10 minutes, some take more. In this case, the time it takes to meet the next half goal can go up or down. For instance, if mining each block takes an average of 9.66 minutes, it would take about 1,409 days to mine all 210,000 blocks. Four years is 1461 days, which includes one extra day for a leap year.
What Happens When There Are No More Bitcoins Left?
It is often thought that in 2140, the last bitcoin will be mined. However, if the reward is halved every 210,000 blocks, it will get smaller and smaller until one satoshi is the reward and the total amount circulating equals 21 million. One satoshi is 0.00000001 bitcoin—it is the lowest denomination of Bitcoin and cannot be halved.
In Short
The rate at which new Bitcoins are put into circulation is cut in half by a Bitcoin split. The rewards system should keep going until 2140, which is when the suggested limit of 21 million bitcoin is thought to be hit.
In 2009, 50 bitcoins were given for each block in the chain that was created. It was 25 bitcoins per block after the first split, then 12.5, and as of May 11, 2020, it was 6.25 bitcoins per block. It’s going to cut in half again in April 2024.
The half of Bitcoin has big effects on its network. The split event could lead to more consolidation among miners as small groups and individual miners leave the mining environment or are taken over by bigger players.
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