You might have heard about ‘the Bitcoin halving’ but don’t know what it is exactly. In this, we explain what the event is and explore what it could mean for the price of the cryptocurrency.
What is the Bitcoin halving?
Bitcoin is limited to its supply, only 21 million Bitcoin will be created to exist. This distinguishes Bitcoin from national currencies that can create an unlimited supply; making it a deflationary asset.
To “create” Bitcoin tokens, Bitcoin miners use computing devices to solve an algorithmic puzzle that rewards them with Bitcoin tokens.
The first sum of Bitcoin rewarded, known as block reward, was 50 Bitcoin (BTC) and could be done using a laptop. At that time, Bitcoin was not worth much.
Now, mining Bitcoin is a much more involved process which requires specialized equipment and a lot of energy and electricity. The block reward is also no longer 50 BTC – at the moment, it is only 12.5 BTC.
Every time 210,000 blocks of Bitcoin are mined, the block reward is halved. This is known as “the Bitcoin Halving”. This halving has happened twice.
When is the next Bitcoin halving?
The first time was in November of 2012 when the block reward was sliced from 50 BTC to 25 BTC per block.
The second Bitcoin halving was in July of 2016 when the reward went from 25 BTC to the current reward of 12.5 BTC per block.
The next halving is predicted to happen around May 2020 and will see the reward fall to 6.25 BTC per block. This prediction is based on how many blocks need to be mined until the next halving and the amount of time it takes for each block to be mined.
Why is there a Bitcoin halving?
If the asset has a finite number of units, why does creating it then need to halve the reward if they will all be in circulation one day anyway?
Basically, reducing Bitcoin by half slows the production of Bitcoin tokens, which helps maintain value.
If too many tokens existed all at once, each Bitcoin would have little value because there would be too many available without enough time for them to be adopted.
Will the halving affect Bitcoin price?
In the past, Bitcoin halving has had a significant impact on the price of Bitcoin. One of the main reasons for this points to the theory of supply and demand. As fewer Bitcoin tokens are generated, the value of those tokens increases. The shortage of Bitcoin translates into value and the price increases.
After the two halves, the price of Bitcoin increased approximately one year later. The first halving took place in 2012, and in 2013 there was a bullfight peak when Bitcoin reached $ 1000, which was an unprecedented maximum.
The second half came in 2016, and Bitcoin reached its all-time high of $ 20,000.
Although two peaks may not be enough evidence to show that Bitcoin increases after a half-reduction of Bitcoin, it is worth noting the timing of major bullfights. If the next half is going to follow the trend, we will see the price of the cryptocurrency rocket.