Bitcoin Halving: Everything You Need To Know

Updated: Sep 9, 2021

Bitcoin Halving

The restriction on the amount of Bitcoins in circulation is one of the most essential characteristics of Bitcoin. New Bitcoins are created in a predictable and transparent manner. This is in contrast to the conventional banking industry, where central banks may create money practically indefinitely.

The word "block halving" is one of the most essential concepts in the Bitcoin industry when it comes to the restricted supply. What is Bitcoin block halving, and how does it work? What's the big deal about it? More information may be found here.

Important questions about Bitcoin block halving :

  • Where do new Bitcoins come from?

  • What is block halving?

  • What does Bitcoin block halving mean for miners?

  • What happens to the Bitcoin price after a block halving?

  • What happens after the last block has been halved?

Where do the new Bitcoins come from?

To understand what Bitcoin block halving means, it is necessary to understand how new Bitcoins are created.

There will be a limited number of Bitcoins available, with a total supply of 21 million. There will be a total of 20,999,999.9769 Bitcoins, however 21 million is significantly simpler to say. The Bitcoin protocol sets and enforces a limit on the amount of Bitcoins in circulation. Block rewards will distribute coins at a predetermined pace.

A block reward is an amount of Bitcoins that miners receive as a reward for their work. Miners maintain and secure the Bitcoin network, primarily by adding new blocks full of transactions to the blockchain. This is crucial and important work, which is why it is rewarded.

At the moment, the block reward is 6.25 Bitcoins. These are newly created Bitcoins that are added to the current offer. The block reward is halved approximately every four years.

Read Also: What is Bitcoin mining ?

What is block halving?

When the block reward for a Bitcoin miner is half, it is known as a block halving. Every 210,000 blocks, this halving occurs. Because a block takes on average 10 minutes to mine, it may be calculated that a half block of Bitcoins occurs every four years. This will go on until there are 21 million Bitcoins in circulation. You can see how long it will be before the next halving at the top of this page.

What does Bitcoin block halving mean for miners?

Creating Bitcoins is expensive, but miners can make a profit when their income, the overall reward, exceeds their costs. These costs include electricity bills, hardware and hardware insurance.

Bitcoin block halving can be predicted. Miners are therefore well aware of the day when the Bitcoin reward will be cut in half. In this respect, block halving offers some certainty to miners. But there is also uncertainty. The computing power on the network has been unstable for years, as has the delivery time of the miners' equipment.

It's logical that miners would get less money as a result of the halving, but half the Bitcoin reward does not always imply half the euro or dollar payment. Is there a steady increase in demand as supply growth slows? The price may then rise in the future, but transaction expenses may become more essential. Miners would still be adequately compensated for their efforts in this fashion.

What happens to the price of Bitcoin after a block halving?

The number of Bitcoins a miner earns when he discovers a block is half after block halving. The prize for mining the first block was 50 Bitcoins, despite the market value being near nil at the time. The reward was dropped to 25 Bitcoins after the initial halving, and the current payout per block is 6.25 Bitcoins. The comparable value in a fiat currency, such as the dollar or euro, varies based on the price in Bitcoins at any particular moment.

Some traders believe that a block of Bitcoins that is halved directly affects the price. The first halving took place in 2012. A year later, Bitcoin reached a temporary high. The same thing happened a year after the next halving, in 2017.

Is this price shift due to the halving of the block, or is it simply speculation? Every day, 1,800 Bitcoins are created, with the great majority of these coins being sold immediately to fund mining costs. If the market is halved, the amount of coins entering the market will be reduced, resulting in increased scarcity. This is the most reasonable explanation for the price hikes that occurred when the blocks were halved.

But will this also happen at the next halving in 2020? We can't be sure; the price of Bitcoin is volatile, and since the halving dates are known, the growing scarcity could already be factored in before the halving.

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What happens after the last block is halved?

When the last block of Bitcoins is split, miners will no longer get block rewards. At that time, they will only be able to earn Bitcoins via transaction fees. As a consequence, transaction costs will play an increasingly important role in the future.

Does this mean that transactions will become more expensive? This will not necessarily be the case. There are many developments on the network that will make expenses manageable.

For example, with the implementation of the Lightning network. This new technique allows transactions to take place on a second interface rather than on the blockchain itself.

In the future, this second interface may be used for smaller transactions. The transaction costs of transmitting coins through the Lightning network are low, guaranteeing that future transactions will be reasonable.

But this is all in the future and we won't even know the last Bitcoin block halving since it is estimated to be generated in 2140.