Bitcoin Halving

What is Halving?

In this post, I want to discuss a fundamental event to understand Bitcoin cycles and how they affect other cryptocurrencies. This event is known as the “Bitcoin Halving.”

Bitcoin, the world’s first cryptocurrency, has an important pre-programmed feature: the reward or payment that miners receive for including transactions in a block on the blockchain is not a fixed value.

Bitcoin
Bitcoin

But what is halving? How often does it occur? How does it affect the value of Bitcoin and other cryptocurrencies?

Definition

Halving is an event where the payment given to a miner for including transactions in a block and attaching it to the blockchain is reduced by half. This event occurs approximately once every 4 years, or every time 210,000 blocks are mined, and it’s called “reduction by half” or “Halving.”

Bitcoin Halving
Reduced by half

Inflation

Satoshi Nakamoto, the mysterious creator of Bitcoin, had two brilliant ideas to control the inflationary effect that typically affects a currency.

The first is the number of Bitcoins available to be created. In his famous paper, Nakamoto pre-programmed a maximum amount of 21 million Bitcoins. In other words, there is no possibility of generating more Bitcoins once that amount is reached.

Only 21 millon Bitcoins
Only 21 millon Bitcoins

The second brilliant idea is precisely this process of generating new Bitcoins. Bitcoins are generated as part of the payment to miners for validating transactions.

Bitcoin miners
Bitcoin miners

Halving helps make this new number of Bitcoins increasingly scarce. Thus, being a scarce asset with growing interest, its value increases steadily. In other words, the value of Bitcoin is defined by supply and demand.

Halving Dates

When Bitcoin mining started in 2009, the reward to miners was 50 Bitcoins for each block validated and attached to the blockchain.

After mining 210,000 blocks, a halving occurs. The first halving was in November 2012, where the reward was reduced to 25 Bitcoins for each block validated and attached to the blockchain.

First Bitcoin halvings
First Bitcoin halvings

The second halving occurred in July 2016, where the reward was reduced to 12.50 Bitcoins per block. Finally, the third halving took place in May 2020, reducing the reward to 6.25 Bitcoins.

Therefore, as of December 2021, the reward a miner receives for validating and attaching a block of transactions to the blockchain is 6.25 Bitcoins. The next halving is expected to occur in mid-2024, and the reward will be reduced to just 3.125 Bitcoins.

BTC Price

There is a very close correlation between each halving and an increase in Bitcoin prices. This is known as the “Bitcoin Bull Run” or End of Cycle Run. Every time BTC undergoes a halving, there is a significant reduction in Bitcoin creation; however, public interest grows daily. Therefore, a scarce asset begins to gain value, reaching historical highs.

BTC Prices
BTC Prices

Let’s take the first halving as an example. In November 2012, the price of BTC was around $13, but by May 2013, it had risen to about $105, reaching a historic $1,151 on December 3, 2013.

For the second halving, the story repeats. In July 2016, the price of BTC was around $700, but by December 2017, BTC reached a historic $19,497 on December 15, 2017. Thus, we can find a relationship between the halving event and an increase in the price of this cryptocurrency.

Altcoin Prices

At the moment, there is also a relationship between the price of all Altcoins and the price of Bitcoin. This relationship is dominated by Bitcoin, as it leads the total crypto market capitalization with 42%. Sometimes, its influence has been nearly 50% of the total crypto market value.

BTC and Altcoins
BTC and Altcoins

Therefore, if Bitcoin starts to rise, other Altcoins will begin to increase in price within days or weeks.
If you study the dates of these Bitcoin price increases, you’ll find that each Altcoin’s price rose (many to historic levels) during those same days.

Final Halving

The final halving is expected to occur around 2136. By 2140, the last of the 21 million Bitcoins available for creation will have been mined. At this point, the halving event will end permanently, as the system will no longer be able to generate new Bitcoins.

However, miners will still have incentives to continue validating and confirming new transactions because each transaction always carries a fee that must be paid by the person initiating the transaction.

For this to happen, Bitcoin’s nominal value will need to be much higher than $69,000 to keep the network running.

Uncertain Future

Some people have commented that the future of cryptocurrencies is uncertain. But in life, is anything certain? In this case, what’s important is to try to visualize how we can benefit from this new technology in the short and medium term.

A technology is always replaced by another, and cryptocurrencies will be no exception. However, I don’t see how this technology could face any problems in the coming years, or even in the next two or three decades.

Uncertain Future
Uncertain Future

So for now, let’s enjoy this technological and mathematical gem that Satoshi Nakamoto started with Bitcoin.

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