The term “Bitcoin Halving” and what it signifies for Bitcoin are familiar to every Bitcoin user and miner.
One of the most eagerly anticipated events in Bitcoin’s history is the halving. This occurrence has an effect on the amount of Bitcoin in circulation. It reduces the number of Bitcoins and increases its demand. Let’s take a look at what Bitcoin halving is, what happens when bitcoin halves, and what will happen when the next halving occurs in 2024.
What is Bitcoin halving?
The process of halving the benefits of mining Bitcoin when each set of 210,000 blocks is mined is known as Bitcoin halving. It is a significant event in the network that occurs every four years. Bitcoin halving restricts the supply of new coins by lowering the rewards for mining Bitcoin as more blocks are mined.
A block on the bitcoin blockchain network is a 1MB file containing bitcoin transactions. As more transactions occur, the number of blocks storing transaction data grows, and the bitcoin blockchain grows in size. Miners compete to add the next block to the bitcoin blockchain network.
Miners powerful employ computers to solve complex mathematical problems in order to generate a 64-character hash key that locks the block. Miners are compensated with bitcoin for their efforts.
Bitcoin uses a synthetic form of inflation that is halved every four years until all the bitcoin has been disclosed and circulated. Watch this video by 99Bitcoins to understand more about Bitcoin halving.
How Bitcoin halving works
Let’s look at how the coin is obtained to help you understand halving in detail.
Bitcoin mining is a technique by which the Bitcoin network launches new bitcoins in the market. It is the process of miners using specialized mining equipment as a virtual pickaxe to dig into Bitcoin’s digital cave and extract BTC. The term “mining” is used in a figurative sense to refer to the process of gathering valuable metals. Bitcoin miners tackle mathematical problems in order to verify a transaction’s authenticity. A block is a single megabyte of Bitcoin transactions stored in a single file. They then group these transactions into blocks and chain these blocks together to build the blockchain.
The miners that process and confirm the transactions within a block are rewarded with bitcoins when the block is filled with transactions. To ensure security, transactions with a higher monetary value require more confirmations.
Bitcoin’s network grows in size as more and more transactions are validated. Miners will earn Bitcoin as a reward after successfully verifying transactions, which normally takes 10 minutes. Proof of work (PoW) is a system used by Bitcoin which means that to be compensated, miners must demonstrate that they have put out effort in processing transactions. The time and energy required to run the computer hardware and solve difficult equations are included in this endeavor.
After a set of 210,000 blocks is mined, or roughly every four years, the incentives collected by miners are cut in half, a process known as Bitcoin halving.
Satoshi Nakamoto established an artificial restriction on the number of Bitcoins that may ever be produced. The limit is 21 million Bitcoins, which will be reached around 2040. Miners will no longer be compensated in Bitcoin for their work at that point. Instead, rewards will most likely be in the form of transaction fees, similar to what credit card issuers already charge.
The significance of the halving event signifies another drop in the rate at which new Bitcoins are created when the overall supply of Bitcoins approaches 21 million. There are around 18.85 million bitcoins in circulation as of October 2021, with just roughly 2.15 million left to be released via mining awards. There have been three bitcoin halving occurrences to date, the most recent being on May 11, 2020.
Implications of Bitcoin Halving
There are a few things to consider when it comes to a Bitcoin halving, and two of the most crucial are why it happens and how it will affect the value of BTC.
To answer the first question, Bitcoin must halve in order for the network to issue fewer new Bitcoins. It reduces the supply in order to maintain Bitcoin’s scarcity while also preventing extreme price inflation.
The impact of the halving on block reward, on the other hand, tends to have a long-term beneficial influence on Bitcoin’s price. There are several hypotheses as to why this is, but one popular one is supply and demand: When fewer Bitcoins are produced, their value rises as a result of the increased scarcity. However, it takes some time for this to manifest. Bitcoin was designed in such a way that it would be a deflationary currency with increasing purchasing power over time.
With the halvings resulting in lower mining rewards, creating new bitcoins becomes a more expensive proposition. Each coin becomes increasingly valuable over time. In contrast, currencies such as the US dollar inevitably lose purchasing power over time.
Even as demand grows, halvings slow the rate at which new coins are generated, reducing the quantity of fresh supply accessible. This has ramifications for investors since other assets having a limited or finite supply, such as gold, might experience tremendous demand, pushing prices upward. Bitcoin’s inflation rate is also reduced by halving.
Inflation is the loss of purchasing power for anything, in this case, the currency. However, bitcoin’s basic infrastructure is designed to be a deflationary asset. To achieve this, halving is critical.
In the past, Bitcoin halvings have been associated with a huge rise of bitcoin’s price. On Nov. 28, 2102, the first halving occurred and it saw a boost from $12 to $ 1217 on Nov. 28, 2013. On July 9, 2016, the second halving took place and the price at halving was $647 by Dec. 17, 2017, one bitcoin price had increased to $19800. During a year, the price fell from this height down to $3276 on the 17th of Dec. 2018 which is 506% higher than its previous halving price.
On May 11, 2020, the most recent halving took place. One bitcoin price was $8,787 on that date. The price of a bitcoin surged to $64,507 on April 14, 2021 which was a remarkable 634% increase from its previous halving price. A month later, on May 11, 2021, a bitcoin price was $54,276, which was a 517% rise that appears to be more compatible with the 2016 halving’s achievement.
What happens to the Price of Bitcoin during Halving?
Notably, every halving results in a shift in the price of bitcoin. Here’s how to do it:
The phrase “halving” in the context of Bitcoin refers to the number of Bitcoin tokens discovered in a freshly produced block. When bitcoin was first introduced in 2009, miners were paid 50 bitcoins for every block processed but this quantity was planned to be lowered by 50% every four years.
The reward was cut to 25 BTC after the initial halving, then to 12.5 BTC, and eventually to 6.25 BTC. A block will only contain 3,125 BTC when the next halving happens. Demand and supply economics come into play at this point. While supply declines, demand fluctuates (increases or decreases), and the price fluctuates in response.
In summary, if the supply of bitcoin falls while demand remains constant, the price of bitcoin will rise. However, if bitcoin supply falls and demand rises (eg, institutional investors, millennials, boomers, etc. looking to capitalize on the hype), the price of bitcoin will skyrocket.
What will happen during the next Bitcoin Halving?
Most investors predict Bitcoin’s value will rise, and that it will grow faster between now and its fourth halving in 2024. This is based on its historical performance as well as the outcomes of the first and second halving events. Bitcoin’s price has risen dramatically in both of these instances.
Within a year following the initial halving in 2012, the price of Bitcoin had risen from $12 to around $1,150. In 2016, the second halving brought Bitcoin’s price to almost $20,000, before plummeting to $3,200. Furthermore, no specific date has been set for when the payout for mining a block will be halved. It depends on when the 210,000th block has been mined since the last event.
Given that new Bitcoins are mined every 10 minutes or so, the next halving is likely to occur in early 2024, with a miner’s payout dropping to 3.125 BTC. Investors and traders in Bitcoin should be aware that halving often results in a significant amount of volatility and turbulence for the cryptocurrency.
Why You can Become Rich During the Next Bitcoin Halving
The fourth bitcoin halving which has been predicted to take place in 2024 at block 84,0000 has seen some light predictions on bitcoin price. Based on history, the next halving will bring a ‘golden moment’ for the world’s biggest crypto, said Jirayut Srupsrisopa, CEO of Bitkub Capital Group Holdings, according to a Bloomberg report.
He anticipates 2024 and 2025 to be a lucrative span for the larger cryptocurrency market as well. According to data from Blockchain.com, 90% of bitcoins have already been mined and are available on the open market. However, due to halving timetables, the remaining 10% will not reach the market until around 2140.
A generation of new crypto millionaires is about to experience a massive shift in wealth because the next Bitcoin halving could be a major trigger for monetary change. It is expected of a bitcoin price to surge dramatically by the end of 2024, averaging to $70,000. This bull market kick-started is likely to proceed in 2025 and as months go by, gains traction. It is predicted that the need for bitcoin will increase thereby increasing the price of the coin to go as high as $80,000.
Conclusion
Every halving has historically resulted in a bull run for bitcoin. The price rises as supply falls, causing demand to rise. This upward tendency, however, will not be immediate. As an investor, you should be aware of Bitcoin halvings because they have historically resulted in significant price fluctuations.
After analyzing the prior three halvings and the subsequent surges, it is reasonable to conclude that the spike occurs after three to six months or a year, rather than immediately. If becoming a millionaire is your goal, the next Bitcoin halving can make you achieve that goal.