Bitcoin Halving and Its Impact

BingX
3 min readSep 26, 2023

The Bitcoin halving, also called the “halving,” is an event that occurs every four years in the Bitcoin network. This is a built-in feature of the Bitcoin protocol created to control the issuance rate of new bitcoins and maintain scarcity over time. The halving is a crucial part of Bitcoin’s monetary policy that enables it to remain differentiated among other assets; it also has significant implications for its supply, some argue its price.

The Bitcoin halving happens every 210,000 blocks mined. This means that the block reward is cut in half. New bitcoins are created as rewards for miners who contribute their computing power to secure the network and validate transactions. This process is known as “mining,” different from proof of stake protocols, which do not have this event. At its creation, the initial block reward was 50 bitcoins per block.

Since this event happens every 210,000 blocks mined, this occurs roughly every four years. This is because fewer new bitcoins are created and added to circulation. The halving reduces the rate at which new bitcoins are introduced into the market; this reduction is essential to contribute to Bitcoin’s overall scarcity. The decreasing supply growth rate serves as a method to cap the 21 million bitcoins, making it a deflationary asset.

Bitcoin halving events have historically been associated with significant price increases. The logic is that if the supply of new bitcoins is reduced while demand remains constant or increases, the reduced supply can lead to upward pressure on the price. However, it’s important to note that while halvings have coincided with price increases in the past, they are not guaranteed to cause price spikes directly. There are other theories as to why positive price action exists, such as the suggestion that the halving doesn’t directly impact the asset’s price. Still, that liquidity would be the primary driver of price action for a fixed supply asset.

The Bitcoin halving schedule is:

· First Halving: November 28, 2012 — Block Reward Reduced to 25 BTC per block

· Second Halving: July 9, 2016 — Block Reward Reduced to 12.5 BTC per block

· Third Halving: May 11, 2020 — Block Reward Reduced to 6.25 BTC per block

· The fourth halving is expected around 2024, when the block reward will be further reduced to 3.125 BTC per block

The halving events are significant to the Bitcoin ecosystem, as they highlight the protocol’s deflationary nature and its intention to gradually reduce the creation of new bitcoins. The cryptocurrency community closely follows these events and often sparks discussions about their potential impact on the price, miners’ incentives, and the long-term outlook for the network.

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