Interesting fact: The mining reward was 50 Bitcoin (BTC) when the blockchain first went live in 2008. The payout remained unchanged until 210,000 blocks were added, after which it was halved (made half). After the next 210,000 blocks are added, the procedure is repeated. This is known as Bitcoin halving.
The Bitcoin halving is among the most significant occurrences every four years and has repercussions for practically everyone involved in the Bitcoin ecosystem. There have been three Bitcoin halving occasions so far (in 2012, 2016, and 2020), each of which has created quite a buzz. Bitcoin halving is a part of the virtual currency’s programming to keep the overall supply constant.
However, let’s focus on what exactly is Bitcoin halving and how does it work? To know about this, you’ll first have to figure out how it works. Worry not; you can read about Bitcoin here.
What is Bitcoin Halving?
The Bitcoin network creates new bitcoins every ten minutes. The number of new Bitcoins released every 10 minutes for the first four years of its existence was 50. This number is halved every four years. When the money is divided in half, it is known as “halving” or “halvening”.
The number of new bitcoins released every 10 minutes fell from 50 in 2012 to 25 in 2013. It further fell from 25 to 12.5 in 2016. Additionally, the reward was reduced from 12.5 in 2016 to 6.25 per block in the most recent halving that happened on May 11, 2020.
The reward will further be reduced from 6.25 BTC to 3.125 BTC after the 2024 halving.
What is going to happen in the Next BTC Halving?
Most investors predict Bitcoin’s value will rise and grow faster between now and its fourth halving in 2024. This is based on its historical performance and the outcomes of the first 3 halvings. In both of these cases, the price of Bitcoin has skyrocketed.
Within a year following the initial halving in 2012, the price of Bitcoin had risen from $12 to over $1,150. In 2016, the second halving brought Bitcoin’s price to over $20,000 before dropping to $3,200. And in 2020, Bitcoin’s price rose from $8,787 to $54,276, representing an almost 517% increase.
Given that new Bitcoins are mined every 10 minutes, the next halving is likely to occur in early 2024, with a miner’s payout dropping to 3.125 BTC. Investors and traders of Bitcoin should be aware that halving – frequently results in significant volatility and turbulence for the coin/token.
The fact is that no one can predict precisely what will happen after the halving and the weeks and months that follow, even though halving occurrences have traditionally resulted in considerable price changes.
Effect of Halving on the Bitcoin prices
The bitcoin price had climbed gradually and considerably from its debut in 2009, when it traded for cents or dollars, to April 2021, when one bitcoin was worth over $63,000. There has been tremendous growth.
Since halving the block reward effectively doubles the cost to miners (or bitcoin producers), it is required to have a beneficial influence on pricing as well, as the miners incur a cost, and to cover that; they increase their selling price.
According to empirical research, Bitcoin prices tend to climb in anticipation of a halving, frequently many months before the actual occurrence.
The Bitcoin halving generally causes price inflation in the cryptocurrency’s network and reduces the pace at which new bitcoins are issued into circulation by half. The rewards scheme is intended to last until 2140, when bitcoin’s specified limit of 21 million is achieved. Following that, miners will be compensated for processing transactions with fees.
The halving of Bitcoin has significant ramifications for the network. While price fluctuations are expected, some individual miners and small companies might also drop out of the mining environment or be taken over by larger entities, resulting in a concentration of rankings for miners. So, let’s wait and watch what happens next.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.