To non-crypto users or beginner-level crypto traders, bitcoin halving might sound like an unfamiliar term. To put it into perspective, a person who hasn’t heard much about cryptocurrency and deals only in FIAT currency would never have heard that a particular government will order banks to cut the amount of money they print in half. The term seems absurd. Why would any country limit the minting of a currency to half? Most people would say such a statement doesn’t make any sense whatsoever. However, in the crypto world, a concept certainly holds to this principle. And we are talking about none other than Bitcoin, whose current supply will reduce to half at some point in 2024.
What is Bitcoin halving?
Every crypto nerd, Bitcoin enthusiast, or even the early adopters of Bitcoin is familiar with Bitcoin halving. Those unfamiliar with this term will learn more about this concept when they dive deep into this article. Readers will also appreciate why a cryptocurrency supply will get slashed in half once the global supply of Bitcoin replenishes.
Bitcoin mining is a process in which the total supply of Bitcoin is reduced by 50% after every four years. Since the introduction of Bitcoin to the world in the late 2000s, almost more than 19 million Bitcoin have been minted and put into circulation. When the Bitcoin white paper was released by now famous and still unseen Satoshi Nakamoto, he revealed that only 21 million Bitcoin would ever exist. Almost 90% of Bitcoin has been mined and put into circulation in one and a half decades. You would surely expect the remaining supply to be depleted soon. But Satoshi knew what he was doing when he said that the amount of Bitcoin to be minted by miners would be reduced to half after every four years.
He introduced this concept, knowing that once the idea of cryptocurrency becomes popular, which it certainly has become today, and the demand for Bitcoin increases exponentially, the world will soon see the total number of Bitcoins being mined, and the need for it would become the talking point for everyone. By halving the number of Bitcoin to be mined, Satoshi ensured that the available Bitcoins to be mined, stored in the blockchains, won’t be depleted in a short span. Current estimates reveal that the last Bitcoin will be mined somewhere in 2140. This means that there are still 128 years left before the world sees the new Bitcoin supply will be exhausted, and those who hold the remaining Bitcoin will undoubtedly consider themselves among the lucky ones.
How does Bitcoin halving work?
If you follow the Bitcoin Blockchain protocol, you will see that the Bitcoin block reward is cut in half, not by the date. This process takes place when the 210,000 blocks of Bitcoin are mined. The time spent reaching the number of 210,000 blocks is roughly four years. In 2024, 840,000 blocks should be called before the next halving period begins. Currently, 764,314 blocks have been mined, and 75,686 blocks remain. Once the figure of 210,000 blocks mined in roughly four years is reached, the block reward to the miners is cut in half. This is done to ensure a reduction in the issuance of new Bitcoin onto the market and is also an efficient way to control inflation programmatically.
In 2009, when Bitcoin was publicly released, the reward for miners who supported the Blockchain and verified the status of the online ledger was 50 BTC. The first Bitcoin halving occurred in November 2012, when 210,000 blocks were successfully mined. The halving process cut Bitcoin’s block reward from 50 to 25. The second halving event occurred in July 2016 when another 210,000 blocks were mined, and the compensation was reduced to 12.5. After the last halving event, which occurred in May 2020, the reward was reduced to 6.25. The next halving event will see the reward reduced to 3.125.
Why is there a need for Bitcoin Halving?
As explained earlier, Bitcoin halving is necessary to maintain control over the total supply of Bitcoin. Also, it is necessary for controlling the price inflation of Bitcoin. Bitcoin has seen its value rise astronomically in the past years. In the November of 2021, the price of BTC was more than $65000. However, due to market crashes, external events, inflation, and many other reasons, Bitcoin is currently trading at approximately $16,000. We need to go into the details of how a Bitcoin gets its market value and why it rises and falls. However, in the upcoming years, the market will again see a rise in the value of Bitcoin, and it can certainly go above $100,000 in value in the future or even more.
Halving the supply of Bitcoin certainly helps in achieving this value. Suppose you suddenly get the news that the supply of Gold, arguably one of the most precious commodities to own, is being reduced to half. The demand for Bitcoin would increase exponentially because it would become a scarce commodity to get hold of as people or governments wouldn’t want to part ways with their existing stash.
Now, if the Gold’s value is based on its scarcity, then halving gold output every four years would, in theory, drive its price much higher.
What impact does Halving have on Bitcoin’s price?
Historically, after every Bitcoin halving event, people have the famous cryptocurrency value rise. Though this is not a hard and fast rule, it would be premature to assume that the next halving event would further boost the Bitcoin value. Even though investors believe that the price movements of Bitcoin follow a similar pattern of past halving events, you will undoubtedly have to consider other factors like the current demand, favorable market conditions for crypto trading, etc., before you feel bullish over Bitcoin value. Other major players have entered the crypto market in the past few years. While it would take a monumental achievement for any other currency to flip Bitcoin’s value, it is certainly not impossible. However, keeping the topic in mind, we can undoubtedly say that previous Halving events have proved profitable for Bitcoin holders. Below is a small chart to back up this theory.
|Halving Date||Bitcoin price on halving date||Bitcoin price after halving (150 days later)|
|28 November 2012||$12.35||$127|
|9 July 2016||$650.63||$758.8|
|11 May 2020||$8821.42||$10,943|
According to this chart by Bitcoin Magazine, we can see how Bitcoin values rise after every halving event. We would like to emphasize again that this cannot be taken as advice to buy/hold bitcoins near a halving event, to gain profit after the expected rise in Bitcoin value. Past performance is no guarantee for future results.
What Happens When All 21 Million Bitcoin are Mined?
Bitcoin miners spend a lot of money when they dedicate resources to mining Bitcoin. A bitcoin halving event will see miners have their revenue negatively impacted after every four years. The other source of income for miners is the transaction fee collected when a Bitcoin block is added. Currently, the transaction fee for providing a service when someone wants to send a Bitcoin to another person is not very high. The cost to send Bitcoin is paid directly to the Bitcoin miner.
However, given the recent rise in the adoption of Crypto by central banks and even some governments, we can see that the transaction fee will get higher for miners, and they will undoubtedly see a reward in continuing their development of the Bitcoin ecosystem.
In 2140, when the expected last blocks of Bitcoin will be mined, all of a miner’s revenue will be associated with just the transaction fees on the network. However, we cannot say that the transaction fee would carry the same reward for miners as the current block rewards. But, if you believe the hype the current crypto market is getting, even in the current bear market, many Bitcoin enthusiasts believe that significant development and growth of users will drive increased revenue for miners.
How much Bitcoin has been lost forever?
Now, this part doesn’t have much to do with the topic sentence, but it would undoubtedly help the non-crypto community understand the significance of Bitcoin. While early adopters of Bitcoin have made a fortune in the crypto world, many unlucky people weren’t taking the upcoming crypto revolution seriously. Some also took it seriously, but maybe it wasn’t in the cards for them to get the gains of being early Bitcoin holders.
According to estimates provided by Glassnode data, about 10% of the Bitcoin supply, or 1,857,721, has been permanently lost. That billions of dollars worth of Bitcoin might never see the light of day in the crypto universe. The data also points out that with only 21 Million dollars of Bitcoin available to trade for, some of that number will remain inaccessible forever, reducing the cryptocurrency’s supply.
Can you take advantage of Bitcoin Halving?
BUY and HOLD, or rather HODL! This is the most followed strategy in the crypto community whenever the Bitcoin halving period comes closer. A crypto trader can buy and store bitcoin in their crypto wallet addresses and hope that the price of the currency will surge after the halving process. We have said earlier that this is not the stairway to success, but historically this has been the case, and quite honestly, holding too much Bitcoin can never be a bad thing.
Traders who have taken advantage of the halving process have seen gains of at least 400-500 percent ROI. One can just hope that the following halving process brings out the exact price surge in Bitcoin value as it has previously.
The most important thing to note when it comes to the Bitcoin halving event is that it helps the network control the circulation of coins. This, in turn, becomes instrumental for the Bitcoin value to remain high in the crypto market. Once the complete supply of Bitcoin is mined, there is still a reward for the miners who stay and help improve the Bitcoin ecosystem. Those rewards will come in the face of fees given for transacting Bitcoin. People are keeping an eye on the 2024 halving event. Many would like to accumulate as much Bitcoin as possible to gain an advantage from the potential price surge after Bitcoin halves.