What Is Bitcoin Halving: How Does It Work And Why It’s Important?

Bitcoin Halving is a crucial event in the crypto market that happens every four years. It helps to control the supply of new bitcoins and offers an algorithm that may control inflation in the future. Also, it is the event that splits the reward value that miners receive after mining 210K bitcoin blocks.

According to the latest research, there are more than 295 million cryptocurrency users all over the world. This number is most expected to cross 329 million by the end of 2028. As of 2024, the market introduces 33 new cryptocurrencies every week. It adds an endless list of digital money being created around us.

Among all these numbers, the most popular cryptocurrency that rules the market is Bitcoin. because it is a digital currency, many people think that it has no end in creation. However, the total number of Bitcoins permitted to be created in the market is 21 million.

Out of these, 19 million Bitcoins have already been created. It means, only 2 million Bitcoins will further be created in the future. It makes this cryptocurrency contrary to fiat money, which is endless and keeps printing whenever required, thus adding to inflation.

Regarding the limited supply of bitcoin, Bruce Fenton, the CEO of Chainstone Labs, a recognized FinTech firm says, “One of the most important features of bitcoin is its limited supply and issuance mechanism.”

Another popular concept about this currency is the process of ‘Bitcoin Halving.’ It is one of the most popular topics of discussion across the web. Let us dive deeper into this topic and learn more about the Bitcoin protocol.

What Is Bitcoin Halving?

Bitcoin halving also known as utmost important event in the mining of this cryptocurrency. It is a process in which the reward for mining new bitcoins is divided in half. This method is said to be written in the original mining algorithm of Bitcoin for the purpose of keeping away inflation.

the process will lead to the scarcity of new bitcoins which tends to keep its value akin to gold and silver, unlike fiat money. To introduce new bitcoins in the market, professionals, known as bitcoin miners add fresh blocks to the bitcoin blockchain. They do so using the latest electronic equipment that helps to mine new blocks.

As per the standard introduced by Bitcoin creators, miners must add 210K new blocks to earn block rewards or new bitcoins. It takes four years to mine 210K new blocks. Hence, the process of Bitcoin halving occurs every four years and leads to a 50% decrease in the number of rewards earned.

This halving will continue to occur until the designated number of 21 million bitcoins is introduced in the market. As per expert calculations, the last coin will be circulated in the year 2140.

The Science Behind Bitcoin Halving

Bitcoin is a cryptocurrency that is mined using the blockchain technology.  The primary software that is used to operate Bitcoin is efficient enough to hold the complete history of all the transactions performed using this currency. For a seamless performance of this software, it is operated on a set of high-end electronic devices called nodes.

these nodes go through a long process to verify each transaction individually. To add a new block to the Bitcoin blockchain, miners validate all the transactions in a block and validate it for further processing. many people are unaware of the fact that every professional working to add a block to the Bitcoin chain is not a miner.

anyone who owns the latest technology computer with storage huge enough to download the entire Bitcoin transaction history is eligible to participate in the mining of new blocks. As of 2024, there are more than 19K nodes working behind the mining of Bitcoin.

The process consists of complex transactions and calculations that lead to an overall duration of four years to mine 210K new blocks. It is when the event of Bitcoin halving occurs. now let us see what happens in the event.

How Does Bitcoin Halving Work?

The overall process of bitcoin mining is based on a mechanism called PoW (Proof of Work). It is used to validate all the transactions performed using this cryptocurrency. Whenever a miner is able to add a new block in the Bitcoin network, the individual is finalized to receive a block reward once 210K blocks are mined.

On a rough estimate, validators and miners add new blocks in the chain after every ten minutes. As per the code, the final reward is split into half of the value that was rewarded in the last halving. After the latest halving, the network rewards miners with 3.125 BTC for adding a block to the network. Previously, they received double the payment, i.e., 6.25 BTC.

This number will keep dividing further after every halving unless 21 million bitcoins are circulated in the market.

The Bitcoin Halving Schedule

Currently, Bitcoin halving has gone through four different schedules with the last one that occurred this year. the future dates can only be expected however, one cannot make sure how quickly 210,000 new blocks can be mined in the upcoming years. here is a detailed table that shares all the Bitcoin halving dates.

Bitcoin Halving History

According to the original algorithm of the Bitcoin blockchain, supposed to be 33 different Bitcoin halving events. After the final halving, which is expected to occur in the year 2140, the value of Bitcoin reward will become less than 1 Satoshi, i.e., the smallest unit of Bitcoin, which is named after its founder Satoshi Nakamoto.

Let us discuss a brief detail about the history of Bitcoin holding from the pre-halving period to the most recent occurrence.

The Launch Of Bitcoin

As discussed earlier, the halving of bitcoin occurs after an interval of four years. However, before the completion of the first four years of Bitcoin history comes the timeline known as the pre-halving period. It is when the first ever bitcoin was mined and a genesis block was circulated in the market by Satoshi Nakamoto, the creator and founder of the foremost cryptocurrency.

It happened on the historical day of 3rd Jan 2009. During that time, the initial value of the Bitcoin block reward was set to 50 BTC by Nakamoto. Because it was a fresh idea, not many people shared their interest in mining of this cryptocurrency. However, with time and hard work, in 2011, this digital money surpassed its value from $0 to $12.

The First Bitcoin Halving

The event of first going halving happened on 28th Nov 2012. It explained to people the concept behind halving and how it will control inflation in the future. Initially, the price of Bitcoin did not happen to increase as expected by Nakamoto. However, as time passed and mining started to take over the market of cryptocurrency, things changed.

Fortunately, after three years of favorable and non-favorable price changes, the value of Bitcoin started to grow.

The Second Bitcoin Halving

Nine months after the steady growth of Bitcoin price, the second halving took place on 9th Jul 2016. More people started to invest in the mining of Bitcoin and exponential growth was seen in its value. Finally, at the end of 2017, the highest value of Bitcoin was recorded at $19,700.

It was when several new cryptocurrencies were introduced in the market. Shortly after this, the concept of initial coin offering as ISO was introduced. It was an idea where entrepreneurs sold new cryptocurrencies to start their businesses. This led to the formation of an ISO bubble after which new digital currencies came into being.

The Third Bitcoin Halving

After four years, the third halving of Bitcoin was recorded on 11th May 2020. During that time, things went unfortunate for this cryptocurrency due to the coronavirus crisis. Many people were unable to mine Bitcoin. Hence, not much growth was seen in its value.

The Fourth Bitcoin Halving

The fourth and most recent halving of Bitcoin took place on 19th Apr 2024. It has divided the value of the Bitcoin reward into 3.125 BTC. Currently, the value of 1 Bitcoin is equal to 64,204 USD. This time, the highest block reward was by a minor who received 40 bitcoins in return, which equalizes to more than 2.6 million USD.

As of now, miners receive transaction fees for efforts along with the block reward, also known as block subsidy. For now, the next bitcoin halving is expected to occur in 2028.

Why Is Bitcoin Halving Important?

As per the core concept by Satoshi Nakamoto, the halving of new bitcoins can lead to a potential increase in the overall value of this cryptocurrency. Because fewer bitcoins will be launched after years, there will be a time no new bitcoins will be mined.

This will result in the scarcity of bitcoins while increasing its demand in the crypto market. It is a planned technique that can quickly raise the value of this currency and overtake inflation. Unlike fiat money, which keeps on printing unnecessarily, due to which its value falls every day.

Besides this, Bitcoin halving has other important goals to achieve. For instance, this is the popularity of this digital currency and lets people know its rising value and demand in the market. This way, more people will be interested in this currency and look forward to investing in it.

The Future Of Bitcoin Halving

After 2009, the industry has seen four different Bitcoin halvings impacting the value and price of Bitcoin in the crypto market. By looking at the insights of these, the future Bitcoin halvings will directly impact miners. With the rising value of bitcoins, miners will have to change their strategies and look forward to new techniques.

There will be several decreases in the value of the future Bitcoin block rewards. Also, the technological impacts of Bitcoin seem promising in today’s advanced era. While there are plenty of other cryptocurrencies evolving, Bitcoin may continue to rule due to its scarcity and control of inflation. As per experts, Bitcoin seems to have a long-term impact on the Industry.

The overall future of Bitcoin seems bright and evolving. The crypto market is all set to experience the new impacts of Bitcoin halving in the next four years.

FAQs

1.    When did the first Bitcoin halving occur?

The first Bitcoin halving happened on 28th November 2012. It decreased the Bitcoin reward to 25 BTC.

2.    When is the next Bitcoin halving?

The next bitcoin halving is expected somewhere around May 2028. It will further divide the block record to 1.5625 BTC.

3.    What happens to miners after Bitcoin halving?

When the Bitcoin halving occurs, validators calculate the overall effect of their mining activity on their budget. In case the reward they receive will not be able to compensate for the cost of their investments, they may stop mining in the future. However, some miners will also continue to receive the transaction fees for all the users who may perform crypto payments.

4.    What will happen after 21 million bitcoins have been mined?

Once the last Bitcoin is mined, there will be no more block rewards. This will occur when the value of the block reward reaches 1 satoshi and will not be valid enough to divide further. At this point, there are also chances of the coins being misplaced or lost in case they are transferred to an invalid address

5.    How will Bitcoin halving impact transactions?

Bitcoin halving can directly impact transactions in the future in terms of fees. It is because, with the decreasing value of Bitcoin rewards, the miners will look forward to receiving higher transaction fees.

Key Takeaways

•    Bitcoin halving is an event that occurs every four years to split the block reward received by miners for their transactions.
•    The event will continue to occur until 21 million bitcoins are circulated in the market.
•    The halving event occurs after 210,000 new blocks are added to the Bitcoin chain.
•    The halving events have occurred four times in history, including the years 2012, 2016, 2020, and 2024.
•    The next Bitcoin halving event is expected to occur in 2028 and the last halving is expected to happen in the year 2140.
•    The continuous decrease in Bitcoin block rewards will lead to the scarcity of new bitcoins While controlling inflation, unlike fiat money.