Every four years, the crypto market highly anticipates the event of the bitcoin halving which automatically decreases the supply of new coins in the open market – and traders usually expect a bull market rally after the halving.
In this article, we bring you an in-depth exploration of the 2024 Bitcoin Halving and everything you need to know about this pivotal moment in the world of cryptocurrencies.
What is Bitcoin Halving?
Scarcity drives value. And, bitcoin exemplifies how scarcity can impact value with a total supply of 21 million bitcoins in a world with a population of over 8 billion people. Currently, only 19 million of the 21 million bitcoins have been mined to circulation.
Bitcoin uses a system called proof-of-work (PoW) to validate transaction information. It’s called proof-of-work because solving the encrypted hash takes time and energy, which acts as proof that work was done.
New bitcoins are brought into circulation through this process called mining. This process confirms the legitimacy of the transactions in a block and opens a new one. The mining Node then verifies the transactions further in a series of confirmations. This process creates a chain of blocks containing information, forming the blockchain.
Miners are rewarded bitcoin for their proof of work – validating transactions on the blockchain. The bitcoin “halving”, as the word implies, reduces the reward of miners for adding new blocks to the blockchain by half (½).
How Does Bitcoin Halving Work?
Every 210,000 blocks (approximately four years), the amount of bitcoin awarded to miners is reduced by half, until all 21 million bitcoins have been virtually mined. This was hardcoded into the Bitcoin protocol by its creator, Satoshi Nakamoto.
The purpose of this halving mechanism is to control the total supply of bitcoins. Bitcoin has a fixed total supply of 21 million and currently, less than 2.5 million bitcoin remains to be virtually mined.
This halving event will go on until all 21 million bitcoins are mined around the year 2140. At that point, bitcoin miners will be incentivized entirely from transaction fees on the network, as opposed to earning from newly minted Bitcoin directly.
The First Bitcoin Halving
The first Bitcoin halving occurred on November 28, 2012, approximately four years after the cryptocurrency’s launch. At that time, the mining reward for each block added to the Bitcoin blockchain was reduced from 50 BTC to 25 BTC.
The Second Bitcoin Halving
The second halving event happened on July 9, 2016, which reduced the mining incentives to 12.5 BTC from 25 BTC for each block mined.
The Third Bitcoin Halving
On May 11, 2020, the reward for each new block mined was halved to only generate 6.25 new BTC.
The 2024 Bitcoin Halving
The next Bitcoin halving is expected to occur in April 2024. It will see the block reward halved from 6.25 to 3.125 bitcoins. The exact date of the halving is not yet known as the time taken to generate new blocks varies, with the network averaging one block every ten minutes.
Why is Bitcoin Halving Important?
The Bitcoin halving is important for several reasons:
Supply Scarcity: The halving reduces the rate at which new bitcoins are created, leading to increased scarcity. The halving mechanism helps ensure that the Bitcoin inflation rate remains under control and that the total supply of Bitcoin never exceeds 21 million.
Economic Dynamics: With the reduced block rewards for miners, the halving influences the economic incentives of mining. Miners must rely more on transaction fees for revenue, impacting the overall economics of securing the Bitcoin network.
Market Impact: The event often attracts attention from the cryptocurrency community and beyond. The anticipation of reduced supply has historically been associated with upward pressure on the price of Bitcoin. How the next halving will impact Bitcoin’s price is unclear. Many speculators believe that the price will follow a similar pattern to the previous three halvings, rising after the event itself as the supply of new coins is constrained.
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