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EducationalDecember 23, 2021

What is Bitcoin Halving?

Shubham Goyal
Product Specialist
December 23, 2021

When the great depression hit, the value of money had dropped so much that people had to take trucks full of money to buy things as petty as bread. This indicates that theoretically, money can be printed infinitely, but this can decrease its value tremendously.

Take another instance when the pandemic hit, the US printed over 3 Trillion in three and half months to combat the economic crisis. On the flip, such is not the case with cryptocurrencies like Bitcoin. It is finite in nature, and only a fixed number of Bitcoins can be mined, 21 million to be exact.

It is believed that when bitcoin was made, it was made with the intention of being deflationary, i.e., reducing its supply to increase its value. For this purpose, bitcoin halving takes place, which ensures that each bitcoin becomes more valuable than before.

What is Bitcoin Halving?

Miners mine Bitcoin by solving complex cryptographic puzzles to verify and validate transactions. The miners, in turn, are rewarded with Bitcoin to facilitate this process.

Miners are constantly adding blocks to the blockchain to receive more and more Bitcoins.

Now in order to keep the supply of Bitcoin limited, the rewards received by miners are cut in half every four years. This is called Bitcoin halving.

After every 210,000 Bitcoin blocks are mined, the reward for mining every block is cut in half.

Relation between Bitcoin Halving and Bitcoin Price

The Bitcoin halving history is a testament to its direct impact on Bitcoin’s price. It has been seen in the past when Bitcoin halving happened; the price increased tremendously.

Before Bitcoin halving, the correlation between this has been quite extreme. But now, as Bitcoin has had time in the market with more investors and acceptance around the world, the future halving can have a different outcome.

Effects of Halving on Miners

As seen above, with every halving, the rewards that miners receive get slashed in half. In the early days of Bitcoin, the reward for mining each Bitcoin was 50 BTC for the first 210,000 blocks. The last Bitcoin halving date was 11th May 2020, cutting the mining reward to 6.25 BTC. The anticipated Bitcoin halving 2024 would decrease the mining incentives to 3.25 BTC.

With the rewards reducing with every halving, what will the motivation be for miners to continue mining? Well, as seen in the past, when halving occurs, the value of bitcoin also increases, which means even though miners get fewer bitcoins, their value could be more than before. On the contrary, as mentioned earlier, the value of bitcoin might not be as profoundly affected by the halving.

Another point to note is that the halving would primarily affect small miners as they have limited resources. It would get more difficult and expensive to mine bitcoins with every halving. So it might be possible for bigger corporations to gain a monopoly in the future as they will be able to invest in superior equipment that can help them mine faster.

Halving and its effects on the Network

Every Halving sets off a series of chain reactions, starting from the anticipation of halving, which increases the demand. Post the halving, the supply reduces. So now there is a situation of high demand and low supply which also aids in the increase of the price.

The question is, will Bitcoin halving increase price? Bitcoin halving 2020 resulted in a ballooning of price followed by a drop. Although the halving process does not directly affect people in the Bitcoin network, the price fluctuation caused by it directly has an impact on the investments.

What happens after all Bitcoins are mined?

After all the 21 million are mined, the miners will stop receiving rewards and have to depend on the fees from transactions on the network. Bitcoin might act as a closed economy, and the fees would act like taxes.

Bitcoin is predicted to be mined to its full capacity by 2140. This is definitely a possibility; with mining slowing down, the puzzles and codes also become tougher and more challenging to add to this. But the real question is, is it possible that we might not, in fact, be able to mine all 21 million bitcoins for a long, long time, even beyond 2140.

There are a number of speculations, questions, and predictions about Bitcoin, Miners, and their future. With more and more countries accepting cryptocurrencies, Bitcoin is getting a wider reach. So whether we mine all 21 million Bitcoins by 2140 or not, we are now certain that Bitcoin is here to stay.

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