Every four years there is an event that miners and bitcoin enthusiasts look forward to: halving. A protocol embedded in bitcoin’s code, it largely determines the future of the cryptocurrency – and helps drive the price.
A reminder about bitcoin
Bitcoin is a virtual currency created in 2009 by an unidentified person whose pseudonym is Satoshi Nakamoto. Unlike traditional currencies (also known as fiat currency), bitcoin is not issued and administered by a banking authority. It is issued on blockchain technology.
This technology allows information to be stored and transmitted transparently, securely and without a central controlling body. Bitcoin, like many other cryptocurrencies, is put into circulation via mining. Miners, people spread around the world, perform mathematical calculations with their computer hardware for the Bitcoin network to confirm transactions and increase their security. In exchange, they receive bitcoins.
The miners will stop mining when all 21 million Bitcoin units are in circulation. This number is expected to be reached in 2140.
Since Bitcoin’s inception in 2008, there have been only three halvings, the last of which was in May 2020. Although it is a fairly new practice, halving marks each time in the cryptocurrency world, and the periods leading up to them are an opportunity for speculation and questioning. Because each halving is an event of special significance, reminding us that miners are getting closer to the end of bitcoin every day.
What is Bitcoin halving?
Bitcoin halving (sometimes called “halvening”) involves splitting the mining bounty for new blocks in half, meaning miners receive 50% fewer bitcoins to verify transactions. Bitcoin halvings are scheduled to occur once every 210,000 blocks, approximately every four years, until the maximum supply of 21 million bitcoins has been generated by the network.
In other words, in the early days of Bitcoin, a miner received 50 Bitcoins for each new block. But this has since changed: in the first halving, in 2012, the reward for miners was reduced to 25 bitcoins. In 2016, at the second halving, it was reduced to 12.5.
Since the last halving in 2020, miners receive “only” 6.25 bitcoins for each new block. At the next halving, which is scheduled to take place in 2024, the payment will decrease to 3.125 bitcoins, and so on.
Coin Metrics logarithmic chart of Bitcoin price action following halving
When is the next Halving?
As mentioned above, currently Bitcoin miners receive 6.25 bitcoins (BTC) for each block they successfully mine. The next Halving will take place in 2024, when the reward per block will drop to 3.125.
Unlike traditional currency, Bitcoin has a fixed number of units: it was decided that there would only be 21 million Bitcoins produced. It is this feature that makes it a rare commodity, like gold: there is a limit. And once it is reached, there will never be another bitcoin mined.