Understanding Bitcoin’s Halving Events
#Bitcoin goes through pre-programmed events called “halvings” approximately every 4 years that reduce the rate at which new bitcoins enter circulation. Here is an overview of how halvings work and their effects:
What is a Bitcoin Halving?
A halving is when the reward paid to Bitcoin #miners for processing transactions is cut in half. This happens after every 210,000 blocks are mined, or approximately every 4 years.
When Bitcoin first launched, the mining reward was 50 bitcoin per block. After the first halving in 2012, it dropped to 25 bitcoin. In 2016, it became 12.5, and the most recent halving in 2020 saw it fall to 6.25. $BTC
Impact on Bitcoin’s Supply
Halvings directly affect Bitcoin’s inflation rate and total supply. Bitcoins are issued at a fixed rate, but the amount created every 4 years keeps getting smaller due to the halvings. Over time this makes bitcoin scarcer.
There is a maximum supply cap of 21 million bitcoins. Without halvings, this would be reached faster. Halvings ensure it is a slow process that won’t be completed until around the year 2140.
Effects on Price and Mining Profitability
Historically, halvings lead to price appreciation as new supply slows down. Both previous halvings preceded major Bitcoin bull runs. However, the effects are not immediate.
For miners, profitability decreases after halvings since their revenue per block is cut in half. This forces less efficient miners to shut down operations. The remaining miners end up benefitting longer term with less competition.
Halvings are an integral event for Bitcoin’s economics. By decreasing the bitcoin creation rate over time, they help create digital scarcity and drive value. So far, halvings have positively influenced prices over the long term.
