What Is Bitcoin Halving? And How Does It Work?

Bitcoin halving

April 2024 is considered a very important date in the history of Bitcoin. This month, Bitcoin is witnessing an important event called halving, which is one of the most important factors in the growth of Bitcoin’s price.

In this article, we would like to examine the halving and its role and impact on the market in a very simple way.

The first question we answer is what is Bitcoin halving?

A Bitcoin halving is a pre-planned event that cuts the supply of new bitcoins in half to control inflation. In the Bitcoin network, a halving phenomenon occurs approximately once every four years after every 210,000 blocks, and based on that, the Bitcoin mining reward is halved at once. In fact, with the halving, inflation and the number of bitcoins produced every 10 minutes will be halved. This event has a significant impact on the price of Bitcoin and can increase the value of Bitcoin over time.

In 2009, the reward for each mined block in the Bitcoin blockchain was 50 of this coin (BTC). After the first halving in 2012, this number increased to 25, then to 12.5, and finally to 6.25 bitcoins per block in the third and previous halving. As expected, yesterday (19 April  2024), saw the halving of rewards and the fourth halving event. It is said that the Bitcoin halving event will continue until around 2140, and after that, no more Bitcoins will be mined.

Why does halving happen?

The most important goal of halving is to control the supply of Bitcoin. Imagine a situation where the Bitcoin mining reward was still 50 BTC per block. In this situation, the big miners of the market could quickly mine all the remaining Bitcoin balance and take control of the market. In addition, the rapid supply of the remaining balance of Bitcoin to the market prevented its price growth, and this digital currency could not reach today’s price ranges without halving. Therefore, the halving system also helps to manage and control the inflation of the Bitcoin market, and by gradually reducing the mining reward, it is ensured that the entire supply of Bitcoin does not flood the market quickly. This system leads to the long-term stability and durability of Bitcoin and increases its security.

Imagine if bitcoin halving didn’t happen and the reward of 50 bitcoins for mining each block continued forever. In this case, the number of bitcoins in circulation would increase indefinitely, and like the fiat system, inflation would also affect bitcoin.

But Satoshi Nakamoto, the creator of Bitcoin, at the time of creating Bitcoin, embedded the halving process in this network to control inflation, and in short, he had several goals for this work.

The purpose of the halving process:

1) Limiting the number of bitcoins to be mined. (Bitcoin stock is limited to 21 million units.)

2) Preventing the rapid mining of all bitcoins helping to maintain its value in the future and controlling the supply of new bitcoins. (The number of bitcoins produced per block will decrease by 50% after every 210,000 blocks).

3) Halving is one of the main mechanisms of the Bitcoin network, which leads Bitcoin to be anti-inflationary by halving the block reward.

Bitcoin Halving

How does halving work?

Blockchain infrastructure technology is used in the Bitcoin network. Blockchain is an interconnected chain of blocks, and each block contains transaction information. Miners are responsible for producing these blocks and verifying transactions. Miners are people who provide the processing power of their mining devices to the network to receive a reward while processing transactions and securing the network.

The reward received by miners is divided into two parts:

– Transaction fees

– Block mining reward.

The part we deal with in the halving is the block mining reward.

In the early days of Bitcoin, this reward was 50 BTC. That is, with the creation of each block, 50 new Bitcoin units were produced and given to the miner who extracted the block. This process continued only until block number 210 thousand (2012). In this block, the first bitcoin halving took place and the miner’s reward for mining each block was halved and reached 25 bitcoins. This process, which is repeated once every 210,000 blocks, is programmed from the beginning in the Bitcoin code. Bitcoin mining will continue until there are no more bitcoins left to mine.

How often does Bitcoin halving happen?

Bitcoin halving happens approximately once every 4 years; Considering that an average of 6 blocks are produced every hour and the halving event happens every 210,000 blocks, it can be roughly said that this happens once every 4 years.

At the beginning of Bitcoin’s activity, 50 Bitcoin units were produced every ten minutes, or to be more precise, the first miner who reached the answer to the block equation received 50 Bitcoins.

In 2012, after the first halving, the mining reward reached 25, and in 2016, after the second halving, the mining reward reached 12.5 units. Then in 2020, the third halving occurred, reducing the mining reward to 6.25 units. Today, this figure has dropped to 3,125 bitcoins every ten minutes after the April 2024 halving of the reward.

Examining the effects of halving in the market:

Effects of Halving on Miners

Bitcoin halving has important implications for its network. For miners, this event may lead to consolidation among them, as individual miners and smaller groups exit the mining ecosystem or are swallowed up by larger players.

The halving of the Bitcoin mining reward, which is the result of the Halving event, has a direct impact on the miners’ income. After this incident, miners who face an increase in their operating costs may be less eager to continue their activity, which can reduce the hash rate and participation in the network of this digital currency.

The effect of halving on the Bitcoin network

Bitcoin halving indirectly affects network transaction fees. By reducing the mining reward for miners, there may be more competition between users to perform transactions in the limited space of each block. This intense competition can lead to increased transaction fees as users bid higher fees to speed up the processing of their transactions.

The effect of halving on the price of Bitcoin:

Bitcoin halving usually attracts the attention of everyone involved in the crypto industry and even people who are not active in this field. Because many expect that the halving will lead to an increase in prices. Although this expectation is correct in the long run and halving usually leads to an increase in price, the reality is that in the short term, we may see unexpected fluctuations or price suffering for several months.

The effect of Bitcoin halving on other digital currencies

Bitcoin is a gateway to the world of digital currencies. Investing in Bitcoin introduces buyers to other digital currencies. Usually, after every significant growth in the Bitcoin market, other digital currencies also grow, in the cryptocurrency market we know this as “alt season”.

After each halving, the attention of users is attracted to Bitcoin and then to other digital currencies, and we usually see that the price peak of altcoins also happens in the 4-year cycles of Bitcoin.

What happens after all bitcoins are mined?

So far, 19,620,150 bitcoins have been mined, which is equivalent to 93% of the supply limit of 21 million units of this digital currency. This means that for the next 116 years, less than 1.4 million bitcoins remain to be mined. As you noticed, miners’ rewards are halved every 4 years, and this pressure may change the situation over time so that the cost required to mine Bitcoin is less than the reward that miners get for confirming each block.

However, apart from the reward for mining each block, miners also earn from transaction fees that users pay. This fee can increase over time, and if the demand for Bitcoin remains high, it may compensate for the reduction or even elimination of the block mining reward in the long run and provide the necessary incentive for miners to maintain the security of the network. Of course, factors such as the growth of the price of Bitcoin over the next decades, the evolution of the equipment used in mining, and the updates of the Bitcoin network have a direct impact on what will eventually happen to this digital currency.

Analysts’ prediction of Bitcoin price after 2024 halving

Various analysts and financial experts have also shared their predictions price of Bitcoin, and in this section, we have brought up the most important ones:

  • Pantera Capital expects Bitcoin to reach $148,000 in its next four-year halving cycle.
  • Jesse Myers, Bitcoin investor and co-founder of Onramp, predicts that Bitcoin will cross $100,000 after the halving in 2024.
  • Robert Kiyosaki, The author of the book “Rich Dad Poor Dad” gives a precise timing for Bitcoin’s ATH, expecting it to reach $100,000 by June 2024.
  • Adam Beck, CEO of Blockstream and featured in the Bitcoin White Paper, predicts that Bitcoin will reach over $100,000 even before the next halving.
  • Samson Mow also expects that Bitcoin will surpass its previous all-time high, stating that it is likely to reach $100,000 before the Bitcoin halving.
  • ARK Invest CEO Cathie Wood said on CNBC Thursday that bitcoin (BTC), the world’s largest cryptocurrency by market value, could reach $1,500,000 in price by 2030 in a bullish scenario,
  • Matt Hougan, chief investment officer at Bitwise Asset Management, expects bitcoin to surpass $200,000 by the end of 2024 due to growing demand from bitcoin-backed exchange-traded funds (ETFs).
  • Bernstein analysts are now more convinced than ever of their $150,000 price target for Bitcoin,
  • Skybridge Capital founder and managing partner Anthony Scaramucci, predicts that the price of Bitcoin will reach its all-time high of $170,000 in the next year and a half. He expects the total market capitalization of Bitcoin to reach at least half of the market capitalization of gold.
  • CryptoQuant analysts predict a short-term price target of around $54,000 with the potential to reach $160,000 in the long term, taking into account various factors including the halving itself, macroeconomic trends, and the increasing liquidity of stablecoins.