Every four years we are bound to witness a trend-setting event. We are not talking about the US presidential election. Neither winter or summer Olympics, though exciting, are part of this significant moment. Have you managed to guess which event we are talking about? Exactly: we allude to the Bitcoin Halving. If you don’t know what it is, please read on!
What is halving?
A halving event refers to the moment when all the rewards coming from Blockchain Network’s verification are cut in half. In the case of Bitcoin, it’s miners’ task to verify the blockchain network. Consequently, during a halving event miners will receive half less Bitcoin as a reward for their work.
What is mining?
Mining is a form of computer calculation, performed by members of a network who operate to solve challenging mathematical problems that require powerful computers to solve them. Everytime a puzzle is solved, a new group of transactions (also called block) is created. Each block is part of a ledger called blockchain. Mining’s focus is to verify if the transaction is legitimate.
How often does halving recur?
Bitcoin typically experiences a halving event every 4 years, or after 210,000 new blocks have been produced.
Bitcoin is deflationary
Unlike all the currencies managed by a government or a central bank, Bitcoin has always had a deflationary structure. What does it mean? It means that the number of Bitcoins to produce is limited. The maximum supply of Bitcoin is 21 million. About 18 million have already been extracted.
What happens when all the Bitcoins will be extracted?
When the Bitcoin halving reaches its lowest point, there will be no more coins to be created. Experts and analysts expect this to happen in the year 2140.
The halvings reduce the coin-creation rate, thus lowering the available supply. This increases the demand for all the assets with low supply, like gold. In general, halving events often generate massive surges in Bitcoin’s value. If we look at the first halving, which happened on November 28, 2012, the price of Bitcoin rose from $12 to $1,207 in a year-span. The second halving occurred on July 9, 2016. At that time, the price was $647, and on Dec. 15, 2017, it rose to $19,345. During the most recent halving, happening on May 11, 2020, Bitcoin’s value was $8,821. On April 12, 2021, the value reached the astounding number of $63,558.
From that moment on, miners will be allowed to pay for the consumption of electricity with the charges received to verify and validate transactions.