It's no coincidence that bitcoin's third halving event. It took place in the same year as the popular alternative asset. What's more, it begins its latest ascent to new heights. Sometimes jokingly referred to as "the halving". This is a major event for the world's leading cryptocurrency.
Here's a look at what happened on May 11, 2020. As well as what bitcoin's halving implies. In particular, the context in which investors should consider it:
What is bitcoin halving?
Why does it matter?
The US dollar and bitcoin.
When will the next halving take place?
What is bitcoin halving?
A "block" on the Bitcoin blockchain is a file storing 1 MB worth of Bitcoin transaction records.
What you need to know about this latest news
Miners" compete to add the next block using specialized hardware. Their main aim is to solve a difficult mathematical problem. As a result, they produce a random 64-character output called a "hash". What's more, they complete the task and lock the block. This is to ensure that it cannot be altered. Miners earn bitcoins by completing these blocks.
When the cryptocurrency launches, miners earn 50 bitcoins (BTC) per block. In this way, early adopters provide an incentive to mine the network. In particular, before anyone knew how successful it would be.
All about bitcoin halving
Bitcoin halving involves halving the rate at which new BTC are created. This happens every 210,000 blocks mined. In other words, every four years or so, until all 21 million bitcoins have been mined.
The first halving of bitcoins in 2012 reduced the reward for mining a block from 50 BTC to 25 BTC. In 2016, the halving again reduced rewards to 12.5 BTC per mined block. Moreover, from May 11, 2020, only 6.25 new BTC are created for each new block mined.
Bitcoin halving involves halving the rate at which new BTC are created. This happens every 210,000 blocks mined. In other words, every four years or so, until all 21 million bitcoins have been mined.
The first halving of bitcoins in 2012 reduced the reward for mining a block from 50 BTC to 25 BTC.
In 2016, halving again reduced rewards to 12.5 BTC per mined block.
And from May 11, 2020, only 6.25 new BTC are created for each new one.
As for the most recent halving, last May bitcoin stood at $8,787. Since then, its price has exploded. In the last few weeks alone, the cryptocurrency has continued to surpass all-time highs. In fact, it currently stands at around $48,000. Its record was set on February 21. Notably, when it surpassed the $58,000 level.
The US dollar and bitcoin
So why halve the rewards miners receive?
One might think that miners have less incentive to tackle the remaining blocks, but this is actually a feature of the system.
"Satoshi Nakamoto (the pseudo-creator of Bitcoin) had foreseen that as the transaction fees generated by the network increased, the need for a subsidy for miners would diminish. With this in mind, he established the predetermined decreasing rate of newly minted BTC," explains Yago.
It's fortuitous that bitcoin's first truly post-mainstream halving event occurred in 2020, the year in which the US suddenly and unprecedentedly increased its money supply, printing trillions of dollars to avert a deep economic crisis. Of course, investors are beginning to see the effects of this unprecedented monetary policy, with rising inflation and Treasury yields causing the market's last rally to come to a halt.
Bitcoin, on the other hand, is fundamentally deflationary – in fact, says Chen, "bitcoin's halving represents a recurring manifestation of bitcoin's deflationary nature." This has been the heart of the bullish thesis for bitcoin all along: this decentralized cryptocurrency cannot be printed in obscurity by governments and their central banks, and the final supply is 100% known.
So, when's the next halving?
Gone are the days when bitcoins circulated freely.
All the "easy" bitcoins have been mined; of the 21 BTC bitcoins that can never exist, over 18.5 million, or almost 89%, have already been mined and are in circulation. Around 900 new bitcoins are mined and put into circulation every day, although advances in computing power have accelerated mining rates, so it could be more than that.
As the halving continues, the rate of growth in the supply of bitcoins will continue to slow until all 21 million BTC are mined; according to forecasts, the last fractions of bitcoins will be mined in 2140.
There is no precise date when the reward for mining a block will be halved. It will depend on when the 210,000th block has been mined since the last halving.
Assuming that new bitcoins are mined every 10 minutes or so, the next halving should take place in early 2024 and, at that unknown date, the miner's reward will fall to 3.125 BTC. Bitcoin miners and investors would do well to start preparing now.
