09 April 2024: In less than ten days from now, Bitcoin halving event is scheduled to unfold even as the world around the $2.81 trillion valued cryptocurrency market waits with bated breath.
In theory, Bitcoin Halving is a programmed event scheduled at the completion of every 2,10,000 blocks, where the mining rewards on Bitcoin get reduced by 50%. The current reward per block for “miners” who validate every Bitcoin transaction through mining, is 6.25 Bitcoins (BTC) which will reduce to 3.125 BTCs by April 20, 2024. It is through mining that new BTC are generated and introduced in the market and the cap has been set at 21 million BTC since the inception of the world’s strongest cryptocurrency.
At the surface level, the halving event might seem to be concerned only with miners who will now see a 50% reduction in their rewards for finishing each block of validating BTC transactions. However, the consequence of the halving event is far-reaching as it could disrupt the cryptocurrency market, attract or repel investors, and shoot up the value of new cryptocurrencies while pushing many others into oblivion.
In this article, we will explain the who, what, where, when, why, and how of Bitcoin halving, with its far-reaching impact on the cryptocurrency market.
Bitcoin halving: The economics of demand and supply
Bitcoin halving, as discussed earlier, is a programmed event scheduled every four years, where the block mining reward is reduced by 50%. Since the introduction of the ‘genesis’ block in the blockchain networks, the creators of Bitcoin cryptocurrency had set a limit of 21 million- the maximum BTC that could ever be generated through mining.
For further explanation, we will use the example of gold and diamond mining. Both gold and diamond, substances found naturally, were discovered by pre-historic humans and since then have been mined at a massive scale, even to this date. However, with time, the mine owners began controlling the supply of the precious items to maintain their “precious” and rare nature and hence control the price, ensuring that the value remained always high.
Similarly, the creators of BTC and Blockchain technology (creators’ pseudonym Satoshi Nakamoto) had launched the BTC network in 2009 with a genesis block, which carried a reward of 50 BTC for miners. As a decentralized system, the blockchain software was programmed with a cap of 21 million BTC that could ever be generated and after every four years, the reward for mining gets reduced by half.
Through such programming, the creators found a simple yet efficient way to keep the demand and supply of BTCs in check, retain their scarce value and to ensure that the bullish run of BTC continues to surge. It has been predicted through calculations that the halving events will continue till 2140 when the 21 million BTC cap will be reached.
Bitcoin halving: A whirlpool event in the crypto market
The Cryptocurrency market, over the years, has gained the reputation of being extremely volatile. Past performances of a particular cryptocurrency don’t determine its future and often, even seasoned investors have faced difficulty in predictions. In this scenario, a halving event acts as a whirlpool where all digital assets are pulled into, and the entire cryptocurrency market gets disrupted.
The first halving occurred in 2012 when the reward for mining was reduced to 25 BTC.
Past halving events of 2020 and 2016 have resulted in a bullish run of BTC and have attracted investors. Let us have a look at how BTC and the crypto market fared in the past two halving events.
The most significant change we can see after these events is the continuous increase in the value of Bitcoin. These price fluctuations always shake the community. This is also the main topic of discussion on major cryptocurrency exchange forums such as CryptoPie, Coinmarketcap, etc. Before welcoming the next Bitcoin halving, let’s review the impact of this event through various periods.
Halving 2012
The first halving event occurred on November 28, 2012 which saw the reward for mining being reduced to 25 BTC from 50. The price of Bitcoin which was at $12.30 during the event, went up to $1050 by November 2013.
Halving 2016
The second halving event which occurred on July 9 in 2016 saw the mining reward reduced to 12.5 BTC from 25. While it considerably reduced mining rewards, it also paved way for more cost-efficient mining setup leading to the creation of a pool of bigger players in the mining industry. Bitcoin, which was trading at 650.96$ before halving, reached an all-time high of $20,089 after 526 days of the July 9 event.
Halving 2020
The third halving event occurred on May 11, 2020, amid a raging coronavirus pandemic. The halving event came in the wake of Bitcoin price crashing from $7935 to $4826 on a single day on March 12, 2020. The halving resulted in a reduction of block reward to 6.25 BTC. Bitcoin had traded at $8787 during the halving and almost one and a half years later, it reached an all-time high of $69,000.
Halving 2024
The fourth halving event is scheduled around April 20 when the total number of blocks will reach 7,40,000. The reward for mining will again get reduced by 50% to 3.125 BTC.
Is Bitcoin halving good?
Experts suggest that historically, halving has always resulted in a surge in the value of BTC and the emergence of other cryptocurrencies. As BTC’s value lies in its limited supply, the halving events will only see the market going bullish on it.
The miners, on the other hand, will have to look for resource optimization and to increase their hash power as we are expected to witness a bigger consolidation of miners in the coming times.
Also Read: Importance of Upcoming Bitcoin Halving For Indian Investors
