What Is Bitcoin Halving?

One of the big moments in the crypto world is about to take place: The Bitcoin Halving. Sometimes this week the rewards miners receive for successfully mining a block will halve from 6.25BTC to 3.125 BTC.

This mechanism is part of the instructions by Bitcoin’s founder(s) stating that after 210,000 new blocks have been added, the reward is being halved. The halvings will continue until the limit of 21m bitcoin supply is reached, which should happen in 2140.

So the term bitcoin halving might be a bit misleading as it’s the miner’s rewards that is being split. That’s why it’s important to start at the beginning to understand what exactly is happening and how it might influence the crypto market.

What Is Bitcoin Halving?
Bitcoin Halving
Bitcoin halving history
The creation of bitcoin
Bitcoin mining
Bitcoin mining rewards
Bitcoin halving 2024 predictions
Short term predictions
Miner’s Rewards
Supply
Demand
Price
Long-term halving impact
Miner’s rewards
Supply
Demand
Price
Future of bitcoin
FAQ:
1. When is the next Bitcoin halving?
2. How is Bitcoin mined?
3. Why is it called mining Bitcoin?
4. How much is Bitcoin worth today?
5. What happens when all Bitcoin has been mined?

Bitcoin Halving

The bitcoin halving is not a new thing, you might have heard it when Obama was re-elected in 2012, in 2016 when everybody was out chasing Pokemon or in 2020 when we just realized how serious Covid-19 would become.

In fact, the bitcoin halving 2024 is happening this week and is the fourth one.

Bitcoin Halving Time Table

So far, the halving always happened after four years and so it’s assumed that the fifth bitcoin halving will take place in 2028.

Now that we’ve established when they’re happening, the next step is to know why they’re happening at that specific time. The next graph is going to help with that as we introduce new criteria: how many new blocks have been created. Please bear in mind that blocks created aren’t equal to how many bitcoins are mined.

Bitcoin Halving Timeline Graph

So every time miners have created an additional 210,000 blocks, the reward they receive is halved. It started with 50 bitcoin per one block verified, to 25 bitcoin, 12.5 bitcoin and now we’re on the verge of going from 6.25 to 3.125 bitcoin in a few days.

Reward Scheme for Verifying One Block

So bitcoins aren’t actually produced by the miners, it’s the blocks that bitcoin is based on that they create. They only receive Bitcoin as a reward for their work to verify the new blocks.

Consequently, every bitcoin that is in circulation right now was once owned by a miner who then decided to sell it.

One direct consequence of this reward-halving protocol is that the supply rate of Bitcoin is constantly going down. The graph shows that in the beginning where one block would get a miner 50 bitcoins, there was a very steep line indicating that a lot of bitcoins were created fast.

Bitcoin Supply V.S Blocks Created

This table illustrates that even more. Whereas it took only 4 years to create the first 10 million bitcoins, it took about ten years to do the same again. This does make sense because halving the reward is going to make it twice as long to create the same amount again.

Bitcoin Halving Numbers Explained

Knowing that Bitcoin’s founder(s) have set the limit of supply at 21 million, the table above might seem like we’ve almost reached the end.

In fact, there are 19.68 million mined and 1.32 million are left to be mined. In percentage, that means we already have 93% of all the bitcoin that will ever exist in circulation.

Percentage of Bitcoins Mined April 2024

The halving takes place every time 210,000 blocks are mined, which at the current speed of mining is about every four years. Bitcoins will be mined until the 21 million have been created which at the time of writing should be in the year 2140.

So it’s actually the opposite, the Bitcoin story is only just starting. However, let’s focus on Bitcoin’s history to understand the future better.

Bitcoin halving history

As previously mentioned, the bitcoin halving is the halving of the Bitcoin mining rewards. So let’s start to understand how Bitcoin was created and its mechanisms. Because why is it called bitcoin mining anyway?

The creation of bitcoin

Bitcoin was created in 2009 by Satoshi Nakamoto.

Nobody really knows whether that is one person or a group of several people and we will probably never know.

It operates on a decentralized digital ledger called the blockchain. The blockchain serves as a public record of all transactions ever made with Bitcoin. Each transaction is verified by network nodes through cryptography and is recorded as a block on the blockchain.

These blocks are linked together in a chronological chain, forming a transparent and immutable ledger of transactions. Think of it as a tower where the previous block builds the foundation of the next one.

The blockchain eliminates the need for a central authority, such as a bank, to oversee transactions, providing users with greater control over their finances and enhancing security through distributed consensus.

Bitcoin mining

Bitcoin mining is the process by which new bitcoins are created and transactions are validated on the blockchain. However, the first question is why is it called bitcoin mining?

This is because it’s supposed to mirror the difficult mining of precious metals, such as gold. Bitcoin is seen just as precious and that’s why the name was coined.

However, it’s important to understand that the bitcoins are created to reward the miner’s effort to create and validate a new block.

We’ve already established that a block contains all information about transactions but how is one verified?

This is done by using powerful computers to solve complex mathematical puzzles. The computers generate an incredibly high number of attempts to guess the right number, just to be the first one to succeed.

In the beginning, it used to be relatively easy and a normal computer was able to participate in this mining process. However, the more people got into it, the harder it became. This led to several people working together and creating mining pools, where equipment was shared as it became quite expensive.

Nowadays, special computers are needed that only perform this kind of task. A high number of computers are needed and that’s why they’re also called mining farms.

While the time of creating a new block is almost static and always takes about 10 minutes in average, the level of how difficult it is to guess the correct number varies a lot.

Development of Difficulty Level to Create New Block Illustration

The more miners are working on one puzzle, the harder the puzzle gets. However, when some of these miners drop off, the difficulty level decreases to ensure that it can still be solved within about 10 minutes.

Bitcoin mining rewards

Now that we’ve established how blocks are being created, the next step is to understand how bitcoins are involved.

Every time a new block is added to the blockchain, the miner responsible for solving the puzzle receives a predetermined number of bitcoins and a transaction fee as a reward. This serves as an incentive for miners to contribute their computational power to secure the network.

We saw that in the beginning, it was 50 bitcoin per block, then went to 25 bitcoin, then to 12.5 bitcoin, and so on.

This whole process has been summarised in the graphic below, with the Bitcoin symbol being split to symbolize the reduced reward.

Development of Bitcoin Mining Illustration

Besides the Bitcoin reward, miners may collect transaction fees from users who wish to have their transactions prioritized and included in the next block.

The combination of block rewards and transaction fees provides miners with a financial incentive to validate transactions and maintain the integrity of the Bitcoin network.

Each halving event reduces the rate of new bitcoins entering circulation, gradually approaching the maximum supply limit of 21 million Bitcoins. As a result, the halving not only impacts the incentives for miners but also contributes to Bitcoin’s long-term scarcity and store of value proposition.

Going all the way, this means that the last halving will take place in more than 100 years and we’ve calculated just how tiny the miner’s rewards will get: 0.00000001 bitcoin. This is also called a satoshi and is the smallest number a bitcoin can be halved into. After this, there are no more halvings and no more new bitcoins mined.

That number is so tiny, we can’t even make any visualizations of it.

The question, of course, comes up: why would miners continue to spend money for electricity and computational power to mine bitcoins if the reward is so small?

The answer lies in the previously mentioned transaction fees that are also part of the mining reward. It’s assumed that these might get more expensive to still be able to make a profit for the miners.

Bitcoin halving 2024 predictions

Unfortunately, nobody knows what will happen after Bitcoin halving 2024, so we can only offer predictions. To make it simpler, we have divided the predictions into short and long-term because some of these might happen straight away while some of these events might take years to happen.

Short term predictions

The 2024 Bitcoin halving will have a variety of short-term consequences. We will start with the miner’s rewards because that’s the first thing that is actually impacted and how that change trickles down to everything else important: supply, demand and price.

Miner’s Rewards

After the 2024 bitcoin halving, the reward that miners receive for successfully verifying a new block will go from 6.25 to 3.125 bitcoin. Therefore, they will make half the money for the same work.

Supply

The Bitcoin halving event has a significant impact on the supply dynamics of the cryptocurrency, which in turn can influence demand. With the halving reducing the rate at which new bitcoins are created, the supply of new coins entering the market decreases.

Demand

The above described reduction in supply can potentially create a sense of scarcity and urgency, driving up demand among investors seeking to buy or hold Bitcoin.

Additionally, the halving event often garners media attention and reinforces the narrative of Bitcoin as a deflationary asset, further fueling demand from both retail and institutional investors.

Price

The price of any asset is determined by the interplay between supply and demand in the market.

Looking at the graph below it shows that the dynamic equilibrium between supply and demand establishes the market-clearing price at which buyers and sellers are willing to transact.

Supply and Demand Graph

For example, when demand for Bitcoin exceeds its available supply, buyers are willing to pay more to acquire it, leading to an increase in its price. Conversely, when supply exceeds demand, sellers may need to lower their prices to attract buyers, resulting in a price decrease.

Now for bitcoin, we’ve established that the reduced rate of bitcoin as a miner’s reward is going to reduce the rate of supply. This reduction tends to create upward pressure on the price of Bitcoin, as demand outstrips the newly reduced supply. Previous halvings have preceded substantial bull runs, leading to sharp increases in Bitcoin’s price.

This is shown in the graph below, where the supply line moves to the left and meets the D line at a higher level making the price increase.

Decreased Supply and Demand Bitcoin Graph

Of course, this is very simplified and assumes that demand stays the same and doesn’t change at all, which is not very likely. However, it helps to explain how the market works at its basic and allows for some general predictions.

Moreover, assuming that demand does in fact increase due to media attention, urgency and reminded scarcity, the price would go up even higher. The D1 moves to the right creating D2 and therefore meeting S2 in a higher equilibrium.

Decreased Supply and Increased Demand Bitcoin Graph

However, it’s essential to note that the relationship between halving events and price movements is complex, and other factors such as market sentiment, regulatory developments, and macroeconomic trends also play a significant role in determining Bitcoin’s price trajectory.

Previous halvings have preceded substantial bull runs, leading to sharp increases in Bitcoin’s price. Yet, nobody can foresee the future and if they say they can, it might be good to stay away.

Long-term halving impact

After having had a look at the potential short-term impact of the 2024 Bitcoin halving, let’s see what could happen in the long term.

Miner’s rewards

The reward miners receive will be halved approximately every four years until there are 21 million bitcoins in circulation. It’s assumed that this will take place in 2140, so still more than 100 years to go.

That number is so tiny, we can’t even make any visualizations of it.

However, we made an image to show how miners are probably going to feel about receiving very little Bitcoin rewards for their work.

Mining Rewards Change Illustration

The answer lies in the previously mentioned transaction fees that people can pay so their transactions are processed quickly. The halvings in the future could lead to these fees becoming higher to still make the mining process profitable.

Development of Transaction Fees for Miners Illustration

Furthermore, the decrease in rewards could prompt consolidation within the mining industry, with larger, more efficient operations gaining a greater share of the network’s hash rate.

Additionally, it may lead to a decrease in mining profitability for smaller or less efficient mining operations, potentially causing some miners to shut down their operations or switch to mining other cryptocurrencies with more favorable reward structures.

Overall, while the halving reduces the rate of Bitcoin issuance, it also introduces challenges and adjustments for miners as they adapt to the changing reward landscape.

Supply

With each halving, the rate at which new bitcoins are created is cut in half, ultimately leading to a gradual reduction in the rate of supply growth.

As a result, the issuance of new bitcoins becomes increasingly scarce over time, leading to a predictable and controlled supply schedule.

As the total supply of bitcoins approaches its maximum limit of 21 million, the rate of new supply creation slows down, further reinforcing the scarcity of Bitcoin and potentially increasing its perceived value as a hedge against inflation and economic uncertainty.

Ultimately, the long-term supply dynamics of Bitcoin, characterized by halving events and a finite supply cap, play a crucial role in shaping its value proposition and investment thesis as a digital store of value.

Demand

The restricted and limited supply of bitcoins might again increase demand because humans

From a long-term perspective, the Bitcoin halving tends to have lasting effects on demand due to its impact on supply dynamics and the perceived value proposition of Bitcoin as a store of value.

As the rate of new bitcoins entering circulation decreases over time, the long-term scarcity of Bitcoin is reinforced, making it increasingly attractive as a hedge against inflation and economic uncertainty.

This realization often leads to sustained demand from both retail and institutional investors seeking to diversify their portfolios and preserve wealth over the long term.

Additionally, as Bitcoin’s adoption continues to grow and it becomes more widely accepted as a legitimate asset class, the long-term demand for Bitcoin is expected to remain robust, driving further price appreciation and market growth.

Price

In the long term, Bitcoin’s price tends to appreciate after a halving event due to reduced supply issuance and increasing demand. The scarcity created by halving reinforces Bitcoin’s value proposition, potentially driving price upward.

However, price movements remain volatile and are influenced by various factors, making long-term predictions challenging.

Overall, halving events historically contribute to bullish sentiment and price appreciation, but caution is advised in the volatile cryptocurrency market.

Future of bitcoin

The future of Bitcoin, particularly in relation to halving events, holds promise for continued price appreciation and growing recognition as a store of value.

With each halving, the supply issuance of Bitcoin decreases, reinforcing its scarcity and potentially driving long-term price appreciation. This deflationary supply dynamics, coupled with increasing adoption and institutional interest, position Bitcoin as a hedge against inflation and economic uncertainty in the digital age.

While halving events contribute to bullish sentiment, Bitcoin’s future also depends on factors such as regulatory developments, technological advancements, and broader market trends. Nonetheless, the halving remains a pivotal event that underscores Bitcoin’s resilience and value proposition as a decentralized digital asset with long-term potential.

FAQ:

When is the next Bitcoin halving?

The next Bitcoin halving is in April 2024. It will happen once the number of blocks hits 740’000 which at the time of writing should happen around April 18th to 21st, 2024.

How is Bitcoin mined?

Bitcoin is mined using powerful computers that solve complex mathematical puzzles. Miners compete to validate transactions and add new blocks to the blockchain, earning rewards in the form of newly created bitcoins.

Why is it called mining Bitcoin?

It’s called mining bitcoin to highlight the similarities of crypto as a precious metal, such as gold. However, it doesn’t involve any physical digging to extract resources from the ground. Instead computers are “digging” for bitcoins.

How much is Bitcoin worth today?

The price of one bitcoin is rather volatile, that’s why we can’t put an answer right here. However, check our Bitcoin real-time prices to know the exact price.

What happens when all Bitcoin has been mined?

Once the 21 million bitcoins have been mined, there will be no more new bitcoins. That means there will be a stable supply of 21m. However, the question is what will happen to the demand, will it increase because bitcoin is now a scarce good or will it decrease? Nobody knows and only time will tell.