Bitcoin halvings are among the most talked about events in crypto for good reason. They are very important to the history and future of Bitcoin.
In this guide, we will discuss everything there is to know about Bitcoin halvings.
What are Bitcoin Halvings?
A Bitcoin halving is a predetermined event that happens every 210,000 blocks, or roughly every four years.
During a Bitcoin halving, the reward for mining Bitcoin – also known as the “block reward” – is halved. This means that miners who previously earned – say, 12.5 BTC per block – will only earn 6.25 BTC per block after the halving.
What is the purpose of Bitcoin halving?
The purpose of Bitcoin halving is to control the rate at which new bitcoins are created and released on places like bitcoin.com.au, a bitcoin exchange.
By halving the block reward every few years, the total supply of Bitcoin is kept in check and the rate at which new bitcoins are minted gradually decreases over time.
This slow but steady decline in block rewards creates a natural scarcity for Bitcoin, which can help protect it from inflation and increase its value over the long term.
Think of it this way: If all 21 million bitcoins were released at once, the market would become saturated and prices could crash. Thus, by reducing the rate at which new bitcoins are created, halving helps preserve the value of each bitcoin.
What is the History of Bitcoin Halvings?
The first Bitcoin halving happened in November 2012 after only 210,000 blocks were mined. At that time, miners were rewarded with 50 BTC as a block reward. After the halving, this reward was reduced to 25 BTC.
The second Bitcoin halving took place in July 2016, reducing the block reward from 25 to 12.5 BTC, and the third Bitcoin halving was completed on May 11, 2020, reducing the reward to 6.25 BTC.
The next Bitcoin halving is expected to happen sometime in 2024, when the miner’s block reward will decrease to 3,125 BTC.
What Are the Consequences of Bitcoin Halving?
The implications of the Bitcoin halving are twofold.
On the one hand, the event may affect the price of Bitcoin in both the short and long term.
When supply decreases or increases while demand remains the same, prices tend to rise as a result. This was seen in all three halvings in 2012, 2016, and 2020, and the value of BTC increased by more than 800% in the year after each halving.
This is because the anticipation of a potential price increase in the days leading up to the halving can cause FOMO (fear of missing out) among investors, which can cause them to buy more Bitcoins and drive up the price.
However, it is important to note that this correlation does not necessarily indicate causation, and it is impossible to predict if or when BTC prices will increase as a result of the halving.
On the other hand, a Bitcoin halving could lead to layoffs of miners. Since the block reward is halved after each halving, miners earn less Bitcoin for their efforts.
This could make it difficult for miners to make ends meet unless the price of Bitcoin rises significantly to compensate for the drop in rewards. As a result, some miners may choose to leave the network and switch to other cryptocurrencies, or simply leave the industry altogether.
Fewer miners ultimately mean a lower hash rate (computing power) securing the network, which makes the network more prone to security breaches, such as the 51% attack. This, in turn, can lower the value of the currency.
What Comes After the Last Halving?
Once all 21 million Bitcoins have been mined – which is expected to happen in 2140 – miners will no longer receive any new Bitcoins in the form of block rewards.
After the last Bitcoin is mined, the network will rely solely on transaction fees to incentivize miners and ensure the security of the network. Transaction fees are paid by all users who wish to transact on the network.
Transaction fees charged by miners will vary depending on the number of transactions that occur. Therefore, an increase in transaction volume will be required to balance the decrease in block rewards.
So, if there is a slowdown in Bitcoin adoption or usage, it could spell trouble for miners who may not be able to continue their operations after the recent halving. Because of this, some analysts believe that the long-term sustainability of Bitcoin is highly dependent on the continued growth and adoption of the cryptocurrency.
Bitcoin halving reduces the supply of new bitcoins, thus preserving its value and preventing the price from falling. But miners can potentially be throttled, reducing the network’s hashrate and making it more vulnerable to attacks.
Therefore, it is important to pay attention to future halvings and their potential implications for miners, investors, and users.
By understanding both the positive and negative effects of halvings, you can better prepare for any changes that may come with them – and hopefully enjoy the benefits of these events as Bitcoin continues to grow and evolve.
Disclaimer: the information contained herein is provided without regard to your personal circumstances and should therefore not be construed as financial advice, investment advice or an offer or solicitation of any transaction in cryptocurrencies.