Interested in understanding the key elements that influence the supply, demand, and price of Bitcoin? One event that stands out is the “Halving”. This scheduled occurrence plays an important role in regulating the availability of new bitcoin in the market because of its limited supply. Seasoned Bitcoin investors express excitement about the upcoming halving event due to historical market patterns observed following previous halvings. In this article, we’ll break down the Bitcoin Halving, its history, and its effect on Bitcoin’s price. Let's get to it!
What’s the Halving?
Every four years, the Bitcoin network undergoes an event called the "Halving", which cuts the supply of newly created bitcoins entering the market. The creator of Bitcoin, Satoshi Nakamoto, implemented a scarcity mechanism into the Bitcoin protocol, which limits the total supply of bitcoin to ever be created to 21 million.
The Halving History
When the Bitcoin network was created in 2009, the amount of bitcoin mined per day was 7,200. However, the halving cuts this number in half roughly every four years. The first halving occurred in November 2012, reducing the daily creation to 3,600, then again in July 2016 to 1,800, and most recently in May 2020 to 900. This cycle will continue until all 21 million bitcoins are mined, projected to happen around the year 2140.
Why is the Halving important?
The halving is especially important because it controls the supply of new Bitcoin entering circulation. The halving contributes to the following:
Scarcity and Demand
The halving reduces the number of new bitcoin being created, making new bitcoin more rare. This limited supply can increase demand, which in turn may push Bitcoin's price higher.
Deflationary Mechanics
The halving is engineered to position Bitcoin as a deflationary asset, which could enhance its long-term value by making it increasingly scarce, much like gold.
Past Bitcoin Halvings
Bitcoin's history shows a pattern that many find exciting. A noticeable price increase typically follows the halving events. Since its inception, Bitcoin has undergone several halvings, and each one has been followed by a period of increased valuation.
Take a look below to see the price of Bitcoin during and after the past three halving events.
The First Halving - November 2012
- Price of Bitcoin During the Halving: ∼$12
- Price of Bitcoin After the Halving: ∼$1,100
The Second Halving - July 2016
- Price of Bitcoin During the Halving: ∼$650
- Price of Bitcoin After the Halving: ∼$18,000
The Third Halving - May 2020
- Price of Bitcoin During the Halving: ∼$8,500
- Price of Bitcoin After the Halving: ∼$69,000
Now with a solid understanding of the Bitcoin Halving, let's dive into the role of Bitcoin miners.
What’s a Bitcoin Miner?
A Bitcoin Miner is a person or organization that uses computer power to help verify transactions on a specific type of digital record-keeping system known as a Proof of Work (PoW) blockchain. The primary job of the Miner is to keep the system secure and trustworthy. For the work completed, the Miner will receive two types of rewards in bitcoin.
Miner Rewards
The first type of reward is the “block reward”, a set number of newly minted bitcoins that are rewarded to the Miner for successfully adding a new block of transactions to the blockchain. The second is “transaction fees”, which are small amounts of bitcoin collected from users who want to prioritize their transactions for quicker validation and inclusion in a block.
Miners are crucial to the Bitcoin network's operation, ensuring its continued functionality and managing the daily issuance of new bitcoins, controlling the rate at which they are created.
A Historical Perspective
The Bitcoin halving is an event that excites many enthusiasts, who look forward to its occurrence. Investors are particularly eager for the next halvings, as it continues to reduce the supply of new bitcoin being created, thus potentially increasing demand and its price.
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