Definition of Halving
The halving is a crucial event in the world of cryptocurrencies, particularly for Bitcoin. This term, literally meaning “reduction by half”, refers to the division by two of the reward offered to miners for validating blocks on the blockchain. This mechanism is integrated into the Bitcoin protocol to control its total supply and maintain digital scarcity.
Origin and Historical Context
Mining secures the network by validating transactions. In exchange, miners receive bitcoins, but this reward is halved every 210,000 blocks, or approximately every four years, according to a deflationary mechanism. Introduced by Satoshi Nakamoto, the halving aims to mimic the deflationary properties of gold. The first halving took place in November 2012, followed by those in 2016 and 2020, marking important turning points in Bitcoin’s history, influencing its price and adoption.
How Halving Works
How it Works
The halving relies on an automated mechanism programmed into the code of the Bitcoin blockchain. Every 210,000 blocks mined, or approximately every four years, the reward paid to miners for each validated block is halved. Initially set at 50 Bitcoins per block in 2009, it gradually decreased to 25, then 12.5, and finally 6.25 Bitcoins during the 2020 halving. This process will continue until all 21 million Bitcoins have been issued, expected around the year 2140.
Impact on Miner Rewards
The halving decreases the direct income of miners, who play a key role in securing the network. As a result:
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- Miners must adapt by optimizing their operating costs, notably by using more efficient hardware, such as ASICs.
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- The hashrate, which measures the total computing power of the network, may temporarily fluctuate after a halving.
Miners also rely on the increase in the price of Bitcoin to compensate for the decrease in rewards, which often reflects an increase in demand due to programmed scarcity.
Main Objectives
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- Control inflation: Unlike fiat currencies, Bitcoin has a limited supply of 21 million units, like gold. While traditional currencies like the euro or the dollar can be printed without any limit and create inflation, bitcoin has inflation. The halving makes existing bitcoins scarcer, therefore more valuable.
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- Promote scarcity: The reduction of new units in circulation increases the perception of value. This can stimulate speculation. Ultimately, there will be 21 million Bitcoins created by 2140.
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- Strengthen confidence in Bitcoin as a long-term store of value. It symbolizes the predictability of Bitcoin.
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- Maintain network security: The halving stimulates the participation of miners, even with decreasing rewards.
The crypto market is influenced by many mechanisms, not just the halving, but it still allows for market analysis. This mechanism plays a fundamental role in the long-term viability of Bitcoin and its ability to attract investors. The halving does not only concern Bitcoin. Other cryptocurrencies, such as Litecoin, also adopt this model to ensure their stability.
Concrete example: After each halving, historical bull cycles have been observed, such as in 2017 or 2021, where Bitcoin reached peaks.
This unique economic mechanism helps position Bitcoin as a credible alternative to traditional assets. Its clear and predictable functioning reassures investors, while highlighting its decentralized nature.
History of Previous Halvings
First Halving (2012)
The first halving took place on November 28, 2012, reducing the mining reward from 50 BTC to 25 BTC. At the time, Bitcoin was still little known and mainly used by technology enthusiasts.
Before the event, the price of Bitcoin hovered around $12. In the following year, its value climbed to around $1,000, highlighting the economic impact of this supply reduction. This halving marked a key step, initiating global awareness of Bitcoin’s potential as a digital asset.
Second Halving (2016)
The second halving, which occurred on July 9, 2016, reduced mining rewards from 25 BTC to 12.5 BTC, reinforcing Bitcoin’s role as a major digital asset. Before the event, its price was around $650. Subsequently, Bitcoin experienced a significant rise, reaching nearly $20,000 in 2017.
This halving also marked a key step in Bitcoin’s history, sparking increased interest from financial institutions and significant media coverage, paving the way for wider adoption and global recognition.
Third Halving (2020)
The third halving took place on May 11, 2020, reducing the block reward from 12.5 BTC to 6.25 BTC. Before this event, Bitcoin was worth around $8,500, but it experienced a meteoric rise, exceeding $60,000 in 2021.
For miners, this reduction intensified competition, making the use of high-performance hardware, such as ASICs, essential to remain profitable in an environment where margins have tightened.
Fourth Halving April 19, 2024
The latest Bitcoin halving took place on April 19, 2024, at the 840,000th block of the blockchain, reducing miner rewards from 6.25 BTC to 3.125 BTC. This fourth halving reinforced Bitcoin’s scarcity, directly impacting its price, which rose from $51,669 in February 2024 to an all-time high of $73,750 on March 14, 2024, before stabilizing around $63,000 on the day of the halving. Mining fees also exploded, reaching over $2.6 million, a surprising increase whose causes remain uncertain.
Halvings, scheduled every four years, play a key role in Bitcoin’s economic strategy. With 29 halvings remaining until 2140, the last satoshi will be mined shortly before the last halving, marking the total exhaustion of Bitcoin issuance.
| Halving | Estimated Date | Price per BTC | Block Height | Reward per Block (in BTC) |
| 0 | – | – | 0 | 50 |
| 1 | 11/28/2012 | $12 | 210,000 | 25 |
| 2 | 07/09/2016 | $645 | 420,000 | 12.5 |
| 3 | 05/11/2020 | $8,500 | 630,000 | 6.25 |
| 4 | 04/19/2024 | $63,800 | 840,000 | 3.125 |
| 5 | 2028 | – | 1,050,000 | 1.5625 |
Impact of Halving on the Bitcoin Market
The effects of halving on the price of Bitcoin are uncertain. Although the reduction in supply may increase prices, this event is often anticipated by the market. Institutional investors, with a long-term vision, buy before the halving, which pushes prices up. On the other hand, individuals often react to FOMO, investing impulsively when prices have already factored in the event.
Effect on Bitcoin Price
The most visible impact of the halving is its influence on the price of Bitcoin. By reducing the supply of new bitcoins, the halving can create upward pressure on prices. Fewer bitcoins are created, but demand for this asset remains, or even increases. This imbalance between supply and demand has historically led to a price increase. After previous halvings, the price of Bitcoin experienced notable increases. Although there is no certainty about the exact effect of the next halving on the price, investors remain optimistic, anticipating a further rise.
Investor Reactions
Investors closely monitor each halving, as this event is perceived as a growth catalyst for Bitcoin. Anticipating an increase in demand after the halving, many investors choose to hold their bitcoins before the event, which can lead to upward pressure on the price. However, institutional investors also play an increasingly important role, which could make the market less volatile than it has been during previous halvings.
Consequences for Miners
An obvious consequence is the increase in the cost of Bitcoin production, as the reward is halved. However, this increase is not simply proportional, as one must also consider the possible 20% decrease in the network’s hashrate, due to the closure of small mining companies facing reduced profitability.
The halving also has a direct impact on Bitcoin miners. By reducing the block reward, the halving can make mining less profitable for those who do not have an efficient infrastructure. Miners who do not have high-performance mining equipment risk becoming unprofitable, which could force them to leave the network. However, those who continue to mine could benefit from the price increase, which would compensate for the reduction in the block reward.
Increased Volatility
Although the halving can create a long-term bullish effect, it can also induce increased volatility in the short term. The uncertainty surrounding the exact impact of each halving on the market often causes significant price fluctuations before and after the event. This can offer trading opportunities for short-term investors, but it also carries risks.
Advantages and Disadvantages of Halving
| Advantages of Halving | Disadvantages of Halving |
| Inflation control: Limits the supply of Bitcoin, protecting its value against overproduction and making it rare and precious. | Reduction of miner profitability: Decreases rewards for miners, potentially making their activity less profitable. |
| Increase in scarcity and perceived value: Reduces the issuance of new coins, which can increase the perceived value of Bitcoin and attract investors. | Market volatility: Price fluctuations before, during, and after the halving can create uncertainty and risks for investors. |
| Stimulation of innovation in mining: Encourages the adoption of more efficient equipment, improving network efficiency and security. | Centralization of mining: Increased competition can concentrate mining activity in the hands of large farms, threatening the decentralization of the network. |
How to Prepare for the Bitcoin Halving?
Preparing for the Bitcoin halving is essential to maximize one’s investment opportunities and minimize the risks associated with this major event.
Follow Market Developments
The first step in preparing for the halving is to closely follow market developments before, during, and after the event. Due to the increased volatility that often accompanies a halving, it is crucial to monitor Bitcoin price trends.
Portfolio Diversification
By diversifying investments, including other cryptocurrencies or traditional assets such as stocks or bonds, investors can better manage risks. This makes it possible not to be entirely dependent on Bitcoin’s performance during this uncertain period.
Prepare Asset Security
The use of hardware wallets and the implementation of additional security measures, such as two-factor authentication (2FA), can help protect your investments against potential attacks.
Anticipate the Reduction of Miner Rewards
If the reward is halved, it may become necessary to increase energy efficiency and reduce operating costs to maintain profitability.
Adopt a Long-Term Strategy
Although previous halvings have been followed by price increases, the long-term effect remains uncertain. For those who believe in the long-term value of Bitcoin, the halving may offer opportunities to buy at relatively low prices before a potential increase. A regular buying strategy or dollar-cost averaging (DCA) can be a good approach to minimize the impact of volatility.
The Halving and Its Influence on Other Cryptocurrencies
Effect of Bitcoin Scarcity on Altcoins
When Bitcoin becomes scarcer due to the reduction in supply, its price tends to increase. This can attract the attention of investors who, seeing Bitcoin gain value, begin to look for other digital assets. This influx of capital into the cryptocurrency ecosystem often benefits altcoins, leading to a generalized price increase in the sector. For example, after previous halvings, cryptocurrencies such as Ethereum and Litecoin experienced significant increases due to the migration of investors to alternatives. Indeed, the Bitcoin halving also reinforces interest in platforms based on smart contracts, such as Ethereum, which benefit from the increase in capital in the sector. During halving periods, investors may turn to DeFi (decentralized finance) projects on Ethereum and other blockchains that allow for higher and more diversified returns.
On the other hand, some miners are turning to cryptocurrencies that are not subject to such drastic halvings. These altcoins, often less expensive to mine than Bitcoin, can become more attractive during and after a halving. As a result, cryptocurrencies like Monero, Zcash, or Dash may see an increase in interest
Different Reactions According to Altcoin Types
Not all cryptocurrencies have the same type of response to the Bitcoin halving. Altcoins with different issuance mechanisms and different protocols may not experience the same effects. For example, cryptocurrencies like Cardano or Polkadot, which are based on Proof-of-Stake type consensus and not on Proof-of-Work like Bitcoin, are not directly impacted by halvings. However, an increase in interest in cryptocurrencies in general can translate into increased interest in these innovative projects.
Conclusion
The Bitcoin halving is a crucial event that influences not only the market dynamics of this cryptocurrency, but also the ecosystem as a whole. Each halving is a key moment for the Bitcoin network, reducing the supply of new units while reinforcing the scarcity and value of the asset. It has profound repercussions for miners, the price of Bitcoin, network security, and the general adoption of cryptocurrencies.
The halving is only one factor among others that can influence the price of BTC. Although it has historically led to increases, in 2024, the trend was already upward, fueled by the approval of a spot BTC ETF by the SEC in the fall of 2023. This marked a validation of Bitcoin by traditional finance and stimulated investments, particularly institutional ones.
Although this event has an immediate impact on the profitability of miners, it also contributes to the long-term stability of the network, making Bitcoin more resistant to inflation and ensuring its role as a store of value. For investors, the halving represents an opportunity to capitalize on market fluctuations, but also a challenge to manage increased volatility and anticipate future trends. Ultimately, the Bitcoin halving is much more than a simple technical event: it shapes the future of Bitcoin and all cryptocurrencies. By understanding its mechanisms and effects, investors, miners, and users can better prepare and take advantage of the opportunities it offers, while remaining aware of the risks associated with this event. The halving remains an unavoidable phenomenon in the history of Bitcoin, guaranteeing both its evolution and its adaptability in a constantly changing digital world.
