Satoshi Nakamoto created Bitcoin as a digital currency enabling secured decentralized peer-to-peer transactions. To make BTC the store of value, they integrated the idea of scarcity with the Bitcoin blockchain network. Instead of a regular infinite supply of BTC, they kept a hard cap of 21 million and encoded the halving concept to ensure the controlled distribution of Bitcoins in the market.
What is Bitcoin Halving?
The Bitcoin halving is the event when the Bitcoin mining reward is reduced by half, therefore, decreasing the supply of new Bitcoins in the market. New Bitcoins are released through the mining process, where the miners solve a highly intricate computational puzzle to verify and secure the blocks of transactions on the Bitcoin network. In return for their efforts, the miners are rewarded with newly minted Bitcoin.
The timeline of Bitcoin Halving
The halving event takes place after every 2.1 lac blocks are mined, i.e. approximately after every four years. By extrapolating this cycle, it is estimated that the process of minting new Bitcoins will last until the year 2140 when it will reach the network’s cap of 21 million units.
In 2009, when Bitcoin was launched, the mining reward was 50 BTC per block. Later in 2012, the first Bitcoin halving took place, and the reward was reduced for the first time.
In the history of Bitcoin, the halving event has occurred three times till now. Let’s have a quick look at the halving events that have happened so far.
- November 28, 2012 – The first halving reduced mining rewards to 25 BTC per block, and the market saw a rise in the prices of Bitcoin from $12 to $1,217.
- July 9, 2016 – The second halving, mining rewards went down to 12.5 BTC per block and the BTC market value at the time of halving was $647, which skyrocketed to $19,800 by December 17, 2017.
- May 11, 2020 – The third and most recent halving, miners’ reward fell to 6.25 BTC. At this moment, BTC’s price was $8,787, soaring to $64,507. A surprising 634% increase from its pre-halving price.
The next halving event is expected to happen in 2024. During this event, the mining reward will be reduced to 3.125 per block. However, we cannot determine its impact on BTC market value. The last halving, i.e., 64th, will happen in the year 2140, ending the mining reward system as the hard cap of 21 million will be reached.
Impact of Bitcoin Halving on BTC price
The halving event helps in establishing scarcity or limited availability of Bitcoin (similar to precious metals like gold and silver) by reducing the rate of new coin production. The idea of scarcity or limited availability is based on demand and supply economics, which implies that when the supply of an entity or item is scarce but the demand increases, the price of that entity will rise. A similar phenomenon is witnessed in the Bitcoin network, where the halving event reduced its inflation rate significantly.
As per the records, the phenomenon of halving often puts Bitcoin in a bullish run as decreased supply and increased demand lead to soaring Bitcoin prices in the crypto market. The price movement depends on several factors, and they can always differ depending on the market sentiments.
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