The last Bitcoin halving took place on May 11, 2020, with the next halving set to occur sometime in 2024. But what is Bitcoin halving and how does it impact the price of bitcoin? In this guide, you will find the answer to these questions.
Bitcoin halving, also known as Bitcoin block reward halving, is the process by which the rewards of mining bitcoin are halved after each set of 210,000 blocks are mined.
The duration it takes to mine that amount of blocks is roughly four years, and therefore you will notice halving usually occurs after that period.
Keep in mind new bitcoin units are released into circulation as “block rewards,” which are produced by miners on the Bitcoin blockchain.
Generally speaking, for every 210,000 blocks that are mined, the reward for mining a block is cut by a half. Starting out, the Bitcoin block reward that miners received for mining a block was 50 BTC.
However, the Bitcoin network has a hard-coded monetary policy that decreases the amount of new bitcoin every 210,000 blocks. As a result, the Bitcoin block reward has halved from 50 to 25 BTC in 2012, from 25 to 12.5 BTC in 2016, and to 6.25 BTC in 2020.
The Bitcoin protocol was designed with a fixed supply and deflationary characteristic. The amount of bitcoin that can be produced is capped at 21 million coins. Therefore, the Bitcoin halving ensures that the amount of bitcoin that can be mined from each block reduces over time. This predetermined number makes them in short supply, and consequently drives up their market value.
At face value, the incentive for mining bitcoin will reduce with every halving. However, Bitcoin halvings have historically resulted in huge price rallies, which have motivated miners to mine more BTC despite their rewards being halved.
An increase in the price of bitcoin is a positive for miners, who can offset mining costs and still make a profit mining despite the reduction in block rewards. If the price remained the same and the rewards were halved, then miners would shy away from mining bitcoin.
The 2012 halving was the first time people could ascertain how the markets would respond to Bitcoin’s unorthodox supply schedule. Until then, the Bitcoin community was unsure how a sudden reduction in rewards would affect the network. Surprisingly, the price of bitcoin rose slightly to $12 from $11 previously. However, within a year, the price has risen to $1,100.
The second halving in 2016 was highly anticipated, with speculation around how bitcoin would rally. Almost immediately, the price of bitcoin fluctuated between the $500 – $1,000 range but soon recovered after a few months to surge to $20,000 by December 2017.
The third halving took place in May 2020, and just like the previous two, it sparked a bitcoin bull run. When the halving occurred, bitcoin was sitting at $9,000. However, by the end of the year, bitcoin was trading at above $20,000. At the time of writing this article, the price of bitcoin was over $54,000.