What is bitcoin halving? Bitcoin halving is the process where the block reward for miners are halved. Why is bitcoin's block reward halved? What is the purpose of halving? Please note that with bitcoin halving, the block reward is halved, not the price of bitcoin.
In this blog post, I will discuss what bitcoin halving is and why bitcoin halving occur. Also, please note that many crypto-currencies are subject to halving, but this is not the case for all crypto-currencies. But the most discussed halving is that of bitcoin. That is the reason why I am using bitcoin halving as an example in this blog post.
Mining and halving
To verify transactions on the blockchain, a blockchain system needs miners. These miners solve hashing puzzles. The one who has solved the hashing puzzle is given the opportunity to verify this transaction. Thus, it is not that miners ultimately make the decision that a transaction will be verified on the blockchain. After a miner solves a hashing puzzle, the nodes in the blockchain system will check for irregularities. If there are none, the transaction is added to the blockchain.
Miners receive rewards when solving a hashing puzzle and verifying transactions on the blockchain. Also called a block reward.
Bitcoin uses the Proof of Work consensus protocol. This means that miners must prove they have put forth effort in processing transactions to be rewarded. This effort includes the time and energy it takes to run the computer hardware and solve complex equations (hashing puzzle).
Idea behind halving
With a Bitcoin halving, the block reward a miner receives in new Bitcoin is halved. A Bitcoin halving happens for every 210,000 blocks that are approved which amounts to about once every four years.
The idea behind this halving is that the price of Bitcoin will continue to rise enough in the long run that the block reward for miners will remain enough to deploy the computing power. Because there is a limited number of Bitcoins on the market (21 million maximum), this theory seems to be working for now.
When is there a Bitcoin halving?
Bitcoin has been around since 2009 and there have been three halvings since then. In the early years of Bitcoin, the block reward per approved block was 50 new Bitcoin.
The last Bitcoin halving was in 2020, when the reward per block was halved from 12.5 Bitcoin to 6.25 Bitcoin.
The exact Bitcoin halving date cannot be precisely predicted but it will roughly follow the trend of once every four years. At the Bitcoin halving date for the Bitcoin halving 2024, the block reward will go from 6.25 new Bitcoin to 3.125 Bitcoin.
In this way, inflation decreases by half and the scarcity of bitcoins is increased. The process of money creation in Bitcoin is completely transparent and predictable. That was exactly what Satoshi Nakamoto described in his whitepaper.
Other assets that are typically very scarce, such as gold and silver, give us an idea about how the halving works. As Bitcoin's inflation rate declines every four years, it gets closer and closer to the scarcity of assets like gold. Assets with very low supply have a high price. That same principle applies to Bitcoin. Creating scarcity increases the value.
What if all bitcoin is mined?
If all bitcoin is mined, then it means that miners no longer receive a block reward either. That ends when all bitcoin is mined. Does this then mean that miners will stop verifying transactions on the blockchain?
No, because miners also receive transaction fees. Because miners also receive transaction fees, the idea is that Bitcoin will continue to increase in value and transaction fees will become an increasingly large part of miners' compensation. As of the year 2140, it may even be the case that mining can be profitable without receiving new Bitcoin for it.
All the bitcoin are (approximately) mined at the year 2140, when all 21 million bitcoin is mined.
Below is a table of historic and future Bitcoin halving dates.
| Halving | Date | Block number | Block reward |
|---|---|---|---|
| 0 (launch of bitcoin) | 3rd Jan 2009 | 0 (Genesis Block = first mined block) | 50 BTC |
| 1st halving | 28th Nov 2012 | 210,000 | 25 BTC |
| 2nd halving | 9th Jul 2016 | 420,000 | 12.5 BTC |
| 3rd halving | 11th May 2020 | 630,000 | 6.25 BTC |
| 4th halving | between Feb to May 2024 | 840,000 | 3.125 BTC |
| 5th halving | approx. 2028 | 1,050,000 | 1.5625 BTC |
| 6th halving | approx. 2032 | 1,260,000 | 0.78125 BTC |
| 7th halving | approx. 2036 | 1,470,000 | 0.390625 BTC |
| 8th halving | approx. 2040/2041 | 1,680,000 | 0.1953125 BTC |
BTC address: bc1q3nnm8m2vrsv8med8a38dl37g8l3mm4wa7ph7wj
ETH address: 0x38b84E2D3B50F83A067A7488C1733180651f418A
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