Bitcoin halving events play an essential role in managing the world’s leading cryptocurrency’s coin supply.
Read on to learn what the Bitcoin halving is, why it’s such a brilliant way to manage new coin supply, and how halving events have historically affected the price of bitcoin (BTC).
Bitcoin Halving Explained
Bitcoin halving is a periodic event that reduces the block reward that bitcoin miners receive every time they mine a new block in the Bitcoin blockchain.
Block reward halvings occur every 210,000 blocks (roughly every four years) since the Bitcoin blockchain went live. They have been programmed to continue with the same progression until all 21 million BTC will have been mined.
After the 32nd halving, which is set to occur in 2140 and when it’s thought the last Bitcoin will be mined, Bitcoin miners will exclusively receive rewards in transaction fees paid by users as an incentive to keep confirming transactions and securing the integrity of the Bitcoin network.
At the moment, the reward for mining a block of Bitcoin is 6.25 BTC. The current block reward value was set after three successful halvings in 2012, 2016, and 2020.
In 2012, the Bitcoin block reward halved from 50 BTC to 25. In 2016, from 25 BTC to 12.5 BTC, and in 2020, from 12.5 BTC to 6.25 BTC.
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The Role of Bitcoin Block Reward Halvings
Reducing the amount of new bitcoin that miners receive every 210,000 blocks creates a situation where the supply of new coins slows down over time, while the demand for the digital currency keeps steadily increasing. As a result, this pushes up the price of bitcoin over time.
More and more individuals, businesses, and institutions across the globe are adopting bitcoin as a store of value, an investment asset, an alternative currency, and a remittance rail. However, the total supply of bitcoin is limited to 21 million, and the rate at which new coins are introduced into the circulating supply slows down over time.
Therefore, as long as the demand for bitcoin grows or remains constant over time, the price of bitcoin should go up because of the Bitcoin network’s disinflationary monetary policy that is influenced by Bitcoin halving events.
Bitcoin’s limited supply and predetermined slowing down of new coin supply is part of the brilliance of Bitcoin as it was created in a way that its value should keep increasing over time, provided the cryptocurrency fulfills its purpose and becomes adopted at a global scale.
Although Bitcoin block reward halvings may seem like a counter-intuitive thing for miners, especially since the amount of bitcoin they receive reduces over time, the price of bitcoin should keep increasing, making the value of their block rewards higher. This is up to a point where the value of each transaction or the number of transactions on the blockchain will be sustainably rewarding.
How Have Bitcoin Halving Events Affect the Price of Bitcoin?
To date, we have experienced three Bitcoin block reward halving events. Each of which gave the price of bitcoin a substantial boost, leading to new all-time highs following each halving.
The first Bitcoin halving event took place on November 28, 2012. By November 28, 2013, the price of bitcoin had increased from $12 to $1,217.
When the second halving happened on July 9, 2016, the price of bitcoin was trading at $647. By the end of 2017, the price had soared to $19,800.
In the most recent halving which was on May 11, 2020, the price of bitcoin increased from $8,787 in May 2020 to $64,507 in April 2021.
These significant changes in pricing have gone to show that reducing the Bitcoin block reward, and thus reducing the influx of new coins into the circulating supply, has helped to boost the price of bitcoin as steadily increasing demand has been met with a slowing supply of new coins.
In 2024, the next Bitcoin Halving event will occur. Something that Bitcoin enthusiasts, investors, traders, and other stakeholders are looking forward to as it may - yet again - push the price of bitcoin to never-before-seen highs.
While there is no guarantee that the price of bitcoin will follow the same path as it did after the first three halvings, dedicated bitcoin “HODLers” are already loading up on the digital currency in anticipation of the next Bitcoin halving.
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