The last Bitcoin halving happened last year, in 2020, a phenomenal year when the popular crypto started to climb to new highs as more and more people started showing interest in crypto for several reasons.
For a better understanding of this review, it would be best to explain explicitly what a Bitcoin halving is first, then have a look at the effects of the last halving a year later and when the next halving will take place.
What is a Bitcoin Halving?
A Bitcoin halving is an event that happens after 210,000 blocks in the Bitcoin blockchain are mined, or about every four years, until all 21 million Bitcoins are completely mined. When halving happens, miners’ rewards are cut in half.
Still confused? Let’s break it down for better comprehension.
The Bitcoin network is a collection of computers and nodes that record transactions that happen on its network. These nodes, some of which are miners, must store the entire blockchain with all its transactions; there are about 12,000 of them. After conducting the required checks, they determine if a transaction is eligible to be approved or discarded.
Bitcoin miners act as transaction processors and validators. Using a system called Proof of Work (PoW), they solve mathematical problems in order to confirm if a transaction is to be approved. After that, the approved transactions are collected as a block. As more blocks are created, they create a chain that makes up the Bitcoin blockchain.
When a block of transactions is complete, the miners that worked on them receive a reward in Bitcoin, thus the currency is released for circulation. Therefore, when a Bitcoin halving happens, the rewards that miners receive are reduced by half.
History of Bitcoin Halvings
The miners initially received 50 Bitcoins as a reward when Bitcoin was first launched. After the first halving that happened on Nov. 28, 2012, the reward was reduced to 25.
The next one, which happened on July 9, 2016, reduced it to 12.5. The latest halving, which happened on May 11, 2020, brought the miner’s reward to 6.25 Bitcoins.
Bitcoin halving will continue until the year 2140 when the 21 million limited supply of Bitcoin will be completely released. By then miners will be rewarded for maintaining the network with the fees that users will pay.
Satoshi Nakamoto built the predetermined system of halving to keep Bitcoin’s inflation rate in check so that the currency doesn’t lose its value from the unlimited supply.
A Year Later, What Has Happened?
Like all Bitcoin halvings, the last one that happened in May 2020 did not pass without causing turbulence. The halving affected a number of things like:
Bitcoin miners: The number of Bitcoins that miners receive as rewards were reduced to 6.25 compared to the 12.5 they received prior to the last halving. This reduction in miners’ rewards will most definitely lead to a drop in the number of miners as it will become economically hard and unprofitable to mine especially for less efficient miners.
The price of Bitcoin: The Bitcoin halving always leads to an increase in the price of the currency because the less Bitcoin released, the increase in value of the available ones, following the law of demand and supply.
The price of Bitcoin was at $12 when the first halving happened in 2012. A year later, it skyrocketed to $1,000. After the second halving in 2016, the price of Bitcoin went down to $670 and increased to $2,550 a year later. Later that same year, Bitcoin was sold at about $19,700.
In December 2018, the price went down to $3,255 but after the last halving in 2020 the price went from $8,821 to $63,558 in April 2021. At the time of writing Bitcoin is currently sold at $39,881, according to data on CoinMarketCap.
Bitcoin inflation rate: The inbuilt feature of Bitcoin halving prevents the currency from inflating. Due to its limited supply of 21 million and the fact that the amount released for circulation keeps reducing after each halving prevents it from over circulation.
Before the 2012 halving, the inflation rate of Bitcoin was 50% but after that, the rate reduced to 12%. After the second halving, it reduced to 4-5%. Its current inflation rate is 1.8%. In contrast with fiat, whose unlimited supply leads to an increase in inflation, the value of Bitcoin keeps increasing due to a decrease in the supply of it.
Investors inflow: As more halving events pass by, the number of people interested in Bitcoin keeps increasing. This increase greatly contributes to the record of crypto inflows. According to the data gathered earlier this year, institutional investors bought about $63 million worth of positions in crypto funds in general while Bitcoin alone recorded about $39 million.
When will the next halving happen? Given that the time taken to mine new Bitcoins is approximately 10 minutes, the next halving will be in 2024 and the miner’s reward will be reduced to 3.125 Bitcoins.
After that, the halving continues until 2140 when the 21 million limited supply of Bitcoin will have been completely exhausted. Until then, miners will continue receiving rewards as new Bitcoins are released.