Every cryptocurrency has its unique characteristics to maintain supply and demand. Bitcoin is the world’s most popular cryptocurrency, and it uses a “halving” process to maintain its supply. This article will explain how Bitcoin halving works and the next time to expect it to happen.
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What Is Bitcoin (BTC) Halving?
It is an event wherein the reward for mining new BTC blocks is halved, meaning miners get 50% less rewards than they previously got. This event occurs for every 210,000 mined Bitcoin blocks, which takes roughly four years.
How Does It Work?
BTC was created in 2009 by a pseudonymous person known as “Satoshi Nakamoto.” The underlying code for this cryptocurrency implemented a halving process to control the supply.
Bitcoin has a maximum supply of 21 million units. No new ones can be created once the number of mined BTC reaches 21 million.
People mine Bitcoins with powerful computers that solve complex puzzles. Miners receive a predetermined amount of tokens for solving arbitrary calculations and completing “blocks” on the Bitcoin blockchain. This pre-determined amount is halved for every 210,000 new blocks that are mined.
Essentially, halving controls the rate at which new BTC is created until it hits the 21 million maximum supply.
How Many Halvings Have Occurred So Far?
When Bitcoin launched newly, mining was relatively easy. Any mining hardware operator who verified a new block was rewarded with 50 BTC tokens. However, this number has decreased over time.
There have been three BTC halvings since the token launched in 2009
- From 50 to 25 tokens in November 2012
- From 25 to 12.5 in July 2016
- From 12.5 to 6.25 in May 2020
You can observe that BTC halving occurs every four years. No law states it should occur every four years; the code dictates that it occurs for every 210,000 new blocks mined. However, it takes roughly 4 years for 210,000 blocks to be mined at current rates, so most people use this period as a benchmark.
Roughly 19.5 million Bitcoins have been mined out of the max supply of 21 million. As more blocks are mined, it becomes harder to mine the relatively few tokens left. For reference, it’ll take longer to mine the remaining 1.5 million tokens than it took to mine the preceding 19.5 million. At current mining rates, Bitcoin is projected to hit its maximum supply by 2140.
When BTC reaches the maximum supply, miners will stop receiving new tokens as a reward. They’ll only earn fees for validating transactions on the Bitcoin blockchain.
When Will the Next Halving Occur?
The next halving is expected to take place in April 2024. By then, the rewards for verifying new blocks will reduce from 6.25 to 3.125. It’ll continue halving in four-year intervals down to decimal points. You should observe that the rewards get significantly lower over time, meaning miners compete for fewer rewards.
As more halvings occur, mining becomes tougher. When BTC was new in 2009, and barely anyone used it, people mined tokens with general-purpose computers and got sizeable rewards. However, as more people flocked to mining, it became impossible to use general-purpose computers for mining. Miners had to buy or rent powerful Application-Specific Integrated Circuits (ASICs) or Graphical Processing Units (GPUs) to make their effort worthwhile.
BTC mining is harder than ever but still doable. You can use your designated ASICs/GPUs or add them to a public mining pool to hasten the process. You’ll pay the mining pool operator a small percentage of your rewards for their services.
Why Does Halving Matter?
It matters because it is the primary method of controlling BTC supply. It affects Bitcoin’s price alongside regulations, new use cases, crypto news sentiment, demand spikes, etc.
We have explained how Bitcoin Halving works, why it matters, and when to expect the next one. At this point, you should understand it enough to explain it to someone else.