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Published on: Jan 10, 2024
#Blockchain
#Bitcoin ETF
#Crypto 360
The last Bitcoin halving occurred in April 2024. But what is Bitcoin Halving, how does it affect the price, and what does it mean for miners and the industry's future?
• A Bitcoin halving event occurs every four years, reducing the payout to miners per block created by half.
• These halvings slow the rate at which new bitcoins are introduced into the market, thus reducing the net flow of new BTCs.
• The last Bitcoin halving happened on April 19, 2024, and for mining one block, the miner received 3.125 BTC.
• The last Bitcoin halving is estimated to occur in the year 2140.
• The overall supply of BTCs is capped at 21 million.
Bitcoin (BTC) has become popular, attracting both institutions and individuals seeking to capitalize on its volatility to generate profits. Halving events, which happen only once in four years, massively impact Bitcoin’s awareness of new investors and increase the value of the existing coins by reducing the pace of producing new coins.
Historically, Bitcoin halving has had a positive influence on the crypto market, with past halving events leading to a rise in Bitcoin's price and market capitalization. Would this always be the case in the future? The answer is yet to be known.
But what exactly is Bitcoin halving, and why is it important to crypto investors? This article will address all the questions about the topic.
Bitcoin halving is an automatic process that occurs every four years and reduces the rewards miners get for adding new blocks to the chain. This reduction in block rewards means that fewer new BTCs are being created and issued into the market, thus making them rarer. Thus, the scarcity of BTCs in the market, given that everything else is equal, could cause the price of BTC to rise.
The blockchain produces these rewards to enable the validation of transactions and the creation of new blocks, commonly referred to as mining. Miners are individuals who try to solve sophisticated mathematical problems and are pitted against each other. The first miner to supply the correct solution to the problem gets new bitcoins as a reward.
When a miner successfully solves the puzzles presented to him or her, that miner’s block is added to the overall blockchain. They get their bitcoins, and then the process starts again. All the miners then work to verify the data that is contained in the new block that was just added while at the same time striving to solve the next block puzzle to be able to get the next set of rewards, which, however, are now lower due to the halving of rewards.
The first halving of bitcoins took place in November 2012. This important occasion was followed by others in July 2016 and May 2020, and the most recent one in April 2024. Upon Bitcoin’s launch in 2009, the miners were rewarded with 50 BTCs for each mined block. This is cut in half with every further halving event. For instance, following the 2012 halving, the payment per block solved was reduced to 25 BTC.
The last halving is expected to happen in 2140. By then, all twenty-one million bitcoins will have been mined, and nobody can mine anymore. Afterwards, miners will only get paid from the user's transaction fees on the blockchain. Richard Baker of TAAL Distributed Information Technologies has warned that miners may shift the hash rate to other coins after the next halving to earn more on fees, which could lead to fewer miners in the Bitcoin network and, hence, less security.
On the other hand, Patricia Trompeter, CEO of Sphere 3D Corp, mentions that while the halving cuts the miner’s reward, it also decreases the intake of new coins in the market without lowering consumers’ demand, which leads to a price increase.
“If the economic theory holds true, which historically for Bitcoin it has, Bitcoin prices should increase dramatically in response to the supply shock,” she says. “Although, there is still debate on whether the historical price movement around each halving was a direct product of the halving.”
This may encourage the miners to continue verifying Bitcoin transactions.
Also, the usage of Bitcoin blockchain is increasing because of new Bitcoin-based financial products like decentralised applications (dApps), which might escalate the cost of transactions for miners. If there is increased activity, then the mere transaction fees might be enough to keep miners in the Bitcoin network even without the increase in prices after halving.
The first halving event occurs every 210,000 blocks, approximately every four years. Although the community is already anxiously awaiting the next halving in 2028.
The schedule of Bitcoin halvings is relatively clear, which allows you to prepare for network changes and make the necessary portfolio adjustments.
With the next halving just around the corner, it is crucial to recall that numerous other factors dictate Bitcoin's value despite previous halving events being bullish to the cryptocurrency after some price fluctuations. On the other hand, Baker warned that mining activity might go down due to the lowered block reward, which could keep the price down.
“The key point for investors to consider, however, isn’t the specific dates of halving events but to focus on the growth of the network overall,” Weisberger says. “As long as the network continues to grow, the likelihood of Bitcoin fulfilling its potential as a global store of value increases.”
Unlike fiat currencies that can be printed in constant quantities, which affects their value, the number of available BTCs is capped at a maximum of 21 million. Halving affects Bitcoin miners by reducing the rewards which they receive from verified transactions and adding new blocks to the blockchain.
The first bitcoin halving happened in November 2012 after 210,000 blocks were created. This resulted in a decrease of the reward given to miners per block created to 25 BTC. Notably, at the start of the Bitcoin network, miners' reward per block was capped at 50 BTC.
The second halving event occurred in July 2016, following the 210,000 blocks of mined bitcoins. Again, the reward accrued by a miner for validating one block on the Bitcoin network was slashed by half--miners' reward was reduced from 25 BTC to 12.5 BTC.
The most recent and third bitcoin halving event occurred in May 2020 after the creation of 630,000 blocks on the largest crypto network. This cut the reward rate from 12.5 BTC to 6.25 BTC.
The fourth halving, which happened in April 2024, required 840,000 to be contributed to the blockchain, and reduced the reward per block to 3.125 BTC.
The halving of Bitcoin is usually followed by a lot of volatility for the cryptocurrency. The halving cycle reduces the amount of available Bitcoin, increasing the value of BTCs yet to be mined.
The first halving occurred on November 28, 2012, when the price of BTC was at $12; one year later, Bitcoin had soared to over $1,000. The second halving, which took place on the 9th of July 2016, made the price plunge to $670 before rising all the way to $2,550. Subsequently, Bitcoin hit an all-time high of almost $19,700 in December 2017.
The halving event plays a critical role in making Bitcoin a deflationary asset. The inflation rate of the largest crypto by market capitalization reduces after every halving event. For example, Bitcoin's yearly inflation rate before the 2020 halving was about 3.68% and fell to about 1.8% after halving.
In addition, a considerable association exists between Bitcoin mining difficulty and Bitcoin halving. The complexity of the mathematical problems that miners must solve to validate and add transactions to the largest crypto network is known as Bitcoin mining difficulty. Halving is vital in managing the flow of new BTCs into the market to ensure a balanced issuance rate.
After every 210,000 blocks created on the Bitcoin network, the payout for miners is slashed in half. However, mining rewards continue to drive miners to verify transactions and contribute to the blockchain mine because the rise in Bitcoin's value is expected soon after the halving exercise. However, it is important to note that previous effects are not indicative of future outcomes, and Bitcoin investing should always be approached with care.
Halving Bitcoin is the concept of decreasing the flow of new bitcoins in the market. This event reduces the reward given to the miners for creating new blocks and happens approximately every four years. Halving is used to regulate inflation and increase the period of new Bitcoin distribution before reaching a maximum of 21 million.
Previous events of Bitcoin halving have boosted the price of Bitcoin, although this could take a while before being realised. This is usually attributed to the supply-side factor of the reduced supply of new BTCs and the demand-side factor. However, it is not a definite increase in price, and it depends on many aspects of the market.
Whether you should invest in Bitcoin before or after halving is entirely up to your trading plan and risk appetite. Purchasing before a halving may be profitable in case the prices increase after the halving, as has been the trend. Nevertheless, every market has its specifics, and it is recommended that you investigate the situation and, if possible, consult with a specialist.
It cannot be guaranteed that BTC will fall after the halving of rewards. Although price fluctuations are characteristic of the cryptocurrency market, the events of halving are usually followed by a price rise. Nevertheless, the past does not predict the future, and trading in Bitcoin is associated with certain risks.
The halving itself occurs every 210,000 blocks and takes place every four years. The effects of halving on Bitcoin’s economy and the mining environment can still be felt for several months and even years before the next halving.
Halving is mainly seen as a positive for Bitcoin as it decreases the issuance of new coins. As the demand for the asset remains robust, the price may go up. It also reveals Bitcoin's deflationary characteristics, which might make it even more attractive as a ‘store of value.‘
Bitcoin halving and its relation to profiting require some form of strategic investment. Investors can consider buying Bitcoin ahead of the halving in hopes of seeing the prices go up, and they must pay attention to the market and its sentiment. An exit plan is a must, and you should be ready for market swings. To minimize the risks, it is advised to invest in a variety of instruments and employ mechanisms such as stop-loss orders.
Bitcoin halving takes place every four years or every 210,000 blocks. The most recent one happened in April 2024; therefore, the next one is anticipated to occur around 2028. Different websites may provide slightly different timeframes as new blocks' creation rates differ somewhat from the estimated ones.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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