The next bitcoin halving is less than two months away. This is a very significant event in the crypto universe for many reasons. The term halving is used because the number of bitcoins issued to miners will be cut in half. This has happened every four years since bitcoin was invented and will continue to happen every four years until the year 2140, when the last of the 21 million bitcoins will have been mined into circulation. The bitcoin halving is coming soon, here’s what crypto experts and skeptics argue could happen.
History of the Halving
Let’s take a look at the relatively short history of bitcoin and the origination of the halving concept. About ten years ago, when Satoshi Nakamoto wrote the white paper on bitcoin, he or she (or they) included an important feature. There were to be only 21 million coins released over the lifespan of bitcoin. This limited supply of coins would be one of the foundations which make bitcoin a preferred alternative to paper currencies, which have the opposite characteristic of unlimited supply.
Inside the actual code for bitcoin, there are specific rules to regulate how much bitcoin will be released and how that supply is allocated over time. When a new block is added to the network by miners, a reward must be paid to those contributors. In the beginning, the compensation was set at 50 bitcoin to be paid to the miner who contributed to the block. When a halving takes place, it cuts the reward in half. In this initial case of 50 awarded bitcoin, after the halving, there would only be an award of 25. Not only are there rules written in the code for how many coins will be awarded to miners but also the frequency of each halving. There’s a line in the code stating,
“Consensus.nSubsidyHalvingInterval = 210000;”
What this means is that after 210,000 blocks are added to the network, the number of new coins released shall be cut in half. What is also predetermined by Satoshi in the code is how many halvings will occur before there’s zero bitcoin left to award to miners. Starting with the original 50 awarded bitcoin per block added to the network and dividing that number 64 times, you would release the final bitcoin into circulation for a total of 21 million coins. This works out to a halving occurring roughly once every four years until the year 2140.
The original bitcoin miners were awarded 50 coins per block in 2009. November 28th, 2012 saw the first halving take place where the award to miners was dropped to 25. Another four years past and the next halving occurred on July 9th, 2016 bringing the total award down to 12.5 bitcoin per block. Now the third halving event is approaching and will see the award get reduced to 6.25 BTC per block.
Effects of Halving on Price
One big question everyone is asking as the halving approaches is what will happen to the price of bitcoin. In theory, the price would need to double for the miners to get the same reward from their contribution to the network as they received before the halving. There’s a cost of computer equipment and power to drive these computers working on the network, and if miners cannot cover these costs with their bitcoin reward, then they will stop their contribution.
Up to this point in time, it’s been very profitable for bitcoin miners to continue their activities because of the price appreciation over the lifespan of bitcoin. The first halving in 2012 saw bitcoin prices rise from $12 to over 1,000 in about a year’s time for almost a 9,000% gain. When miners are paid for their contributions in bitcoin, and the value of the awarded bitcoin rises in price by thousands of percent, there’s a huge incentive to continue mining operations.
After 210,000 blocks were added to the network, another halving occurred in 2016. This saw another price surge from $500 – $600 per bitcoin to over $2,500 a year later for an almost 300% gain. This second halving did see a huge price increase but not as significant on a percentage basis as the first halving in 2012. Some speculation on the reduced gains from the second halving includes people who were anticipating the halving, and much of the price appreciation was already being factored in prior to the second halving.
Prices eventually hit nearly $20,000 for one bitcoin a few years after the 2016 halving. Prices then crashed down to almost $3,000 and have since recovered to $7,000. Many people speculate that this 3rd halving has been priced far in advance of the actual event, but there’s absolutely no way to tell if that’s the case or not. There’s never been more interest around bitcoin heading into the 3rd halving event, and there’s sure to be price swings to match this intense debate.
Some sound advice I’ve heard is to sit back and enjoy the ride and never invest with money you can’t afford to lose. Two possible outcomes are bitcoin going to zero or blasting off into orbit to an all-time record price. I hope that helps.