What is Bitcoin Halving?
Bitcoin halving is the process to reduce the incentive for the participating nodes by half for new block creation. The first transaction in each block contains a special transaction that starts a new coin owned by the creator of the block. This process ensures:
- An incentive for the participating nodes to the support the bitcoin network
- A mechanism for the addition of a constant amount of new bitcoins and distribute them into circulation without the need of any central authority
The first bitcoin came into existence on 3 Jan 2009, when Satoshi Nakamoto mined the first block of the bitcoin blockchain, which had a reward of 50 bitcoins.
Satoshi Nakamoto ensures that bitcoin has anti-inflationary properties, and configured the algorithms in a such a way that a predetermined number (21million) of bitcoins come into circulation.
Bitcoin halving is the process to reduce the incentive for the participating nodes by half for new block creation. This ensures that the predetermined supply of bitcoins can not be breached.
In every ~10 minutes a new block has been added into the bitcoin blockchain network and bitcoin halving occurs once 210,000 new blocks have been added to the bitcoin blockchain network. As block numbers started with 0 that means first halving happened at 210000 block number on 20 November 2012 and block reward gets reduced to 25 bitcoin per block.
On the time frame side halving event used to happen every 4 years (that means second halving of bitcoin had happened in 2016 at block number 420000 and again block reward get reduced by half. That means now participating nodes will get 12.5 bitcoin as a block reward for new block creation.
When is the next bitcoin halving?
As we are again about to reach the goal of the addition of 210,000 new blocks in the bitcoin blockchain, we are going to experience halving at block number 630,000 on ~11 May 2020 and block reward will going to reduce to 6.25 bitcoins per block. As the new block generation time varies nearby ~ 10 minutes, we can not predict the exact date for bitcoin halving.
Bitcoin halving is a recurring event until the network reaches the total supply of 21 million bitcoin which will be going to happen near the year 2140, until bitcoin network governing protocol has been modified. As per the current calculations there will be 64 bitcoin halving events before the network reaches the goal of maximum supply.
|Block Number||Year||Reward in Bitcoin||Total Supply|
|0 – 209,999||50|
Why bitcoin halving is important?
As world governments are free to print more fiat currency as per the country’s requirements and need, this process exposes the potential of reaching an inflation. As bitcoin supply is capped at 21 million, halving ensures that this supply is maintained and no further coins come into existence. Halving provides bitcoin anti-inflationary properties, that is why it is an important phenomenon.
How does a bitcoin halving work?
Algorithms (a set of rules) and software programs that fuel the bitcoin blockchain network are designed and configured in such a way that network keeps performing all this operation without human intervention. These algorithms and software have the responsibility of the halving process also. These algorithms also ensure each participating node gets its reward for the resources put by them to support the network. These algorithms also verify all the transactions, create new blocks, provides the integrity, immutability, security to the blockchain network.
What happens to miners when the bitcoin reward is halved or how will miners be affected?
Generating new valid blocks in the bitcoin network requires a huge amount of resources (energy and hardware). As the bitcoin reward is reduced by half per block that means miners need to recalculate their revenues. If the cost of resources comes up on the higher end than the revenue generated that means mining activity is no longer remains profitable for them and they may decide to stop their mining for the network. That does not mean that blockchain network health is going to impact in any way, as algorithms are designed to adjust the difficulty rate for the creation of new blocks for such cases.
What will happen when all 21 million bitcoins have been mined?
Once bitcoin network reaches the goal of 21 million bitcoins that means there will be no block rewards for the miners for the creation of new blocks. In this case, miners have to rely on the transaction fee incentive that is provided to the miners for verifying the transactions before including them into a block. That does not mean that blockchain network health is going to impact in any way, as algorithms are designed to adjust the difficulty rate for the creation of new blocks for such cases.
How might the bitcoin halving impact BTC’s price?
As bitcoin has a limited supply that means it is more likely to increase in value over time. If we consider the demand and supply fundamentals for any commodity, it is quite clear that price may increase as halving will reduce the number of new bitcoins that come into existence with each new block. But we need to consider various other factors into consideration as the cryptocurrency market has become more mature over time and there are competitors for bitcoin too.
There are two halving activities happened in the bitcoin network, respectively in the year of 2012 and 2016. A massive surge in bitcoin price has been observed post these halving activities. In 2012 bitcoin price has seen a sudden spike from $2 to $1000 in a short duration of one year. Similar type of spike taken place in 2016 when bitcoin price moves up to $20000 from $600 in a shorter duration.
The halving event usually comes up with huge speculation, volatility in the market, and hype, and the price gets a massive correction after making all-time highs.
What do i need to do as bitcoin user?
There is no need to worry, as we have been through two such events in the past. Bitcoin halving is an event related to the mining rewards and it has nothing to do with the regular users. Your bitcoins will be safe in your exchange, digital wallet, hardware wallet, or any mode you are using to hold them. You can observe volatility in the price but there will be hardly any impact on the network performance post halving.
How will the halving affect the Bitcoin?
As the block rewards get reduced, it will impact the revenue generation for miners. This can provide an opportunity for the miners to start supporting the other network that helps them in generating more revenue. If the number of miners get reduced, it can lead the network open for possible attacks and an increase in the transaction fees.