Bitcoin Halving – Forbes Advisor

The available supply of conventional currencies rises and falls under the watchful eyes of national central banks, but the total supply of Bitcoin is fixed and unchanging.

There will only ever be 21 million Bitcoin. Currently, a little more than 19 million have been mined, and there are just under 2 million left. The Bitcoin protocol automatically reduces the number of new coins issued with each new block in a process called halving.

“One of the most important features of Bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech company Chainstone Labs. “Bitcoin provides security in an uncertain world. The code, not people, determines how it is issued.”

Bitcoin’s transparent and automatic supply control is one of the reasons supporters of the world’s most popular cryptocurrency see it as a store of value more akin to gold than a fiat currency.

What is Bitcoin Halving?

The Bitcoin halving is when the reward for Bitcoin mining is halved. Halving occurs every four years.

The halving policy was written into Bitcoin’s mining algorithm to counter inflation by maintaining scarcity. In theory, the reduction in the pace of Bitcoin issuance means that the price will increase if demand remains the same.

Currently, Bitcoin has an inflation rate of less than 2%, which will decrease with further halvings, says David Weisberger, CEO of trading platform CoinRoutes. That looks pretty good compared to the annual consumer price index (CPI) inflation rate of 9.1% for June.

“Bitcoin’s production scarcity is what defines its finitude, and when the reward goes down, the supply is limited,” said Chris Kline, CEO of Bitcoin IRA. “Increasing demand at a time when supply is limited has a positive impact on price, which could make bitcoin attractive to investors.”

How Does Bitcoin Halving Work?

A decentralized network of validators verifies all Bitcoin transactions in a process called mining. They are paid 6.25 BTC when they are the first to use complex mathematics to add a group of transactions to the Bitcoin blockchain as part of the proof-of-work mechanism.

At the current Bitcoin price, 6.25 BTC is worth roughly $148,000, a decent incentive for miners to keep adding blocks with Bitcoin transactions running smoothly.

These blocks of transactions are added approximately every 10 minutes, and the Bitcoin code dictates that the reward for miners is halved after every 210,000 blocks created. It occurs approximately every four years during periods that are often accompanied by increased price volatility for Bitcoin.

When did the first Bitcoin halve?

The first Bitcoin halving happened in November 2012. The next halving was in July 2016, and the last halving was in May 2020.

The reward, or subsidy, for mining started at 50 BTC per block when Bitcoin was released in 2009. The amount drops to half each time a new halving takes place. For example, after the first halving, the reward for Bitcoin mining dropped to 25 BTC per block.

In total, there will only be 64 halvings, with the last one in 2140. At that point, there will be 21 million BTC in circulation and no more coins will be created. From there, miners will only be paid with transaction fees.

Richard Baker, CEO of miner and blockchain service provider TAAL Distributed Information Technologies, points out that miners may shift transaction processing power away from BTC when the next halving takes place as they seek more transaction fees elsewhere to compensate for lost Bitcoin revenue.

Fewer miners would mean a less secure network, experts say.

On the other hand, while the halving reduces the reward for miners, it reduces the supply of new coins just as much without reducing demand, notes Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp.

“If economic theory holds true, as it historically has for Bitcoin, Bitcoin prices should rise dramatically in response to the supply shock,” she says. “Although there is still debate as to whether the historical price movement around each halving was a direct product of the halving.”

Higher prices will be an incentive for miners to continue processing Bitcoin transactions.

When will the next Bitcoin halve?

The Bitcoin algorithm dictates that halving occurs based on a certain creation of blocks. No one knows exactly when the next halving will happen, but experts point to May 2024 as an expected date. It will be almost exactly four years since the last time.

The somewhat predictable nature of Bitcoin halvings was designed so that it is not a huge shock to the network, experts say.

But that doesn’t mean there won’t be a trading frenzy around Bitcoin’s next halving.

“Historically, there is a lot of volatility in Bitcoin prices leading up to and following a halving event,” said Rob Chang, CEO of Gryphon Digital Mining, a privately held Bitcoin miner. “But the price of Bitcoin usually ends up significantly higher a few months after.

Although there are many other factors that affect Bitcoin’s price, halving events generally seem to be positive for the cryptocurrency after the initial volatility subsides.

Baker says investors should be cautious about the next Bitcoin halving. Although scarcity can drive price increases, reduced mining activity can cause prices to flatten out.

“However, the key point for investors to consider is not the specific dates of halving events, but to focus on the growth of the network in general,” says Weisberger. “As long as the network continues to grow, the likelihood of Bitcoin fulfilling its potential as a global store of value increases.”