What is halving of Bitcoin?

A calendar with the logos of Bitcoin indicating the date.The mining reward will drop to 3.125 bitcoins per block at the upcoming Bitcoin halving, which is anticipated to happen on April 16, 2024.

The halving of bitcoin is a process that happens roughly every four years and lowers the rate of new bitcoin creation by 50%.

The halving lowers the quantity of fresh bitcoins that are available on the market, which may result in price growth if demand stays the same or rises.

Despite being digital money, Bitcoin's value proposition is based on provable scarcity because it can't be produced indefinitely.

Two notions of scarcity are fundamental to the Bitcoin protocol:

First, there is the finite quantity of Bitcoin. It is mandated by the protocol that the maximum quantity of bitcoins that can exist is 21 million, and any further bitcoins cannot exist. In contrast, fiat currencies allow the government or central bank to generate more money at their discretion, which could result in inflation.

The term "halfing" refers to the second idea. The Bitcoin mining reward, sometimes referred to as the "block reward," is cut in half roughly every four years. This has a direct effect on the rate at which new Bitcoins are put into circulation by reducing by 50% the incentive granted to the contributors who secure the network.

The quantity of new Bitcoins added to the network (every ten minutes) through virtual "mining" was cut in half, from 12.5 to 6.25, in May 2020. It will decline once more to roughly 3.125 in April 2024, and this process will continue until all 21 million coins have been produced, which is predicted to occur in or around 2140.

Miners will now validate blocks exclusively with transaction fees.

Why does the Bitcoin halving matter?

The halving increases the likelihood that Bitcoin would appreciate in value over time (assuming stable demand levels), in contrast to fiat currencies, which usually lose value due to inflation over time (this is, for instance, why you might obtain a Coke for a week.

To put it succinctly, the halving is one of the ways the Bitcoin protocol preserves scarcity, and millions of people are drawn to Bitcoin because of scarcity.

However, there are other factors that make the Bitcoin halving an event that is highly watched, making scarcity not the only reason it is significant.

For instance, a half of Bitcoin typically results in increased journalistic coverage of cryptocurrencies and Bitcoin. Naturally, as the incident makes headlines, it attracts the attention of prospective new investors who may not have previously thought about buying Bitcoin or interacting with cryptocurrencies. As a result of the increased interest in Bitcoin, more people may want to buy it as they try to take advantage of any price fluctuations brought on by the halving.

usually attracts more press coverage of cryptocurrencies and Bitcoin. As the event garners headlines, it naturally piques the interest of potential new investors who might not have previously considered investing in Bitcoin or engaging with cryptocurrencies. This surge in attention can lead to an increase in demand for Bitcoin as new and existing investors aim to capitalize on the potential price movements caused by the halving.

This procedure generates what is known as the blockchain, a chain of information-containing blocks.

The incentive for these network contributors is cut in half with each halving event, which slows down the rate at which new bitcoins are released into circulation. To put things in perspective, as of March 2024, more than 19 million bitcoins had been "mined," leaving about 2 million left to be essentially "mined."

When will there be another Bitcoin halving?

Three halvings of Bitcoin had already occurred as of March 2024:

The payout was reduced from 50 to 25 bitcoins each block on November 28, 2012.

Then, on July 9, 2016, the number of bitcoins per block dropped once more, from 25 to 12.5.

And most recently, it was cut in half on May 11, 2020.

The most recent reduction was from 12.5 to 6.25 bitcoins per block on May 11, 2020.

The next halving is anticipated to take place during the third week of April 2024, bringing the mining reward down to 3.125 bitcoins per block. Bitcoin blocks are mined roughly every 10 minutes.