1. What is Bitcoin Halving?

The Bitcoin halving is an event in which the block reward for validating transactions in the Bitcoin network is reduced by fifty percent (50%). This happens after every 210,000 blocks are mined – roughly a four-year interval considering Bitcoin’s average block creation time is 10 minutes.

Block reward halving is included in the Bitcoin mining algorithm to provide predictable scarcity. While many people compare Bitcoin to gold because their functions are very similar, the halving will be different. The halving brings a predictable emission rate to Bitcoin that cannot be guaranteed with gold.

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To illustrate this, let’s explore the Bitcoin mining process.

Mining is the process of validating transactions and adding new blocks to the Bitcoin network. It requires the use of specialized hardware such as ASICS (Application Integrated Circuits) to solve complex cryptographic equations to protect the Bitcoin network from attacks such as "double spends." In return, the Bitcoin network rewards miners for their efforts with newly minted coins.

When Bitcoin was first launched, mining rewards were 50 BTC per block. But after three successful halving events, the block reward has been reduced to 6.25 BTC. As a result, the rate at which new coins enter circulation slows over time, leaving Bitcoin in a deflationary environment.

2. How does the Bitcoin halving affect the price of Bitcoin?

Historically, previous halving events have caused Bitcoin prices to increase, but not immediately because other factors are also at play in the network.

Over time, halvings cause Bitcoin prices to rise and help miners make substantial profits, even though they receive fewer Bitcoins as block rewards.

At the time of the halving in June 2016, the price of Bitcoin was around $660. After the halving event, it continued to trade sideways until the end of the month. But by the end of 2017, Bitcoin’s price had soared to an all-time high of around $20,000 at the time.

Following the halving event in May 2020, the price of Bitcoin also rose from around $9,000 to over $27,000 by the end of the year before reaching nearly $70,000 in November 2021.

This by no means means that future halvings will always lead to price increases, as the price of Bitcoin is affected by a variety of factors