What is the Bitcoin halving?
If you’ve read this article on Bitcoin mining, you know that new bitcoins get created every 10 minutes to reward miners for verifying transactions and adding blocks to the blockchain. Every 210,000 blocks, the amount of bitcoin that gets created to reward the miners get slashed by 50%. This event is known as the “halving”, and it occurs approximately every 4 years.
What is the purpose of the Bitcoin halving?
The reason this was built into the protocol is to control the rate at which new bitcoins are created. It serves as a built-in mechanism that reduces the rate of inflation. It’s a coded monetary policy, essentially. Slowing down the rate at which new bitcoins are created ultimately ensures that there will never be more than 21 million bitcoins in existence.
How many Bitcoin halvings have there been so far?
The past halvings of Bitcoin happened on the following dates:
- The first halving took place on November 28, 2012, and the block reward went from 50 to 25 bitcoins per block.
- The second halving occurred on July 9, 2016, and the block reward went from 25 to 12.5 bitcoins per block.
- The third halving took place on May 11, 2020, and the block reward went from 12.5 to 6.25 bitcoins per block.
As you would expect, as new bitcoins get harder to produce via mining, the price per BTC tends to increase.
How have the Bitcoin halvings historically effected the price?
Every single halving event thus far has served as the catalyst for a major bull run.
The halving events are clearly marked on the chart above, and as you can see.. every time it happened, it was followed by a massive surge in price.
Of course, past performance doesn’t guarantee anything for the future. This market is still new, and 3 data points isn’t very much to work with.. however, there’s clearly a pattern and I personally use it as a timeline for when I can expect the macro bull and bear markets. If it fails, I’ll regroup and reevaluate my strategy going forward.
The future Bitcoin “halvings”
When newcomers look at the price of Bitcoin today, they likely feel as though they’re “late to the party”. However, if you look at the halving schedule and realize that it won’t be until 2140 until all 21 million bitcoins will be mined, it really puts into perspective how early we are in this..
As you can see, as time goes by.. bitcoin will only get more scarce as the mining rewards get cut. If the first 3 halving events have resulted in a massive price increase, then what do you think will happen to the price of Bitcoin after 10 more?
Nobody knows I suppose, but assuming the demand for it stays strong, the increased scarcity of the asset should continue to drive the prices higher. That’s just basic supply/demand economics.
Summary
The Bitcoin halving is a pre-programmed event that occurs every four years and it refers to the reduction of the amount of bitcoins that are awarded to miners for verifying transactions. The halving is designed to control the rate at which new bitcoins are created, which serves as a mechanism to control the inflation of the currency. So far, the halving events have served as a bullish catalyst for not only Bitcoin, but the entire cryptocurrency market.
