What is Bitcoin halving? What is the history of bitcoin halving? How does it work & What is its significance? The last bitcoin halving.
As a beginner in the crypto learning journey, everyone faces these questions. In this article, I will try to give you a complete guide of what bitcoin halving is.
So, let's start.
What Is Bitcoin Halving?
Bitcoin halving is the process by which the reward given to a miner for mining a block is cut in half after a certain period. Currently, the block reward(reward given to the miner) is 6.25BTC which was reduced to half from 12.5BTC on May 11, 2020.
History of Bitcoin Halving
In the initial days of bitcoin when it was introduced by Satoshi Nakamoto in January 2009, the value of bitcoin, as well as the difficulty of mining, was very low. You could start mining just with a normal computer. (I have discussed cryptocurrency mining in detail here)
In the same way, each miner received 50 BTC for mining a block in the initial days of bitcoin. It was in November 2012 when the first halving occurred and the block reward was reduced to 25 BTC. There have been four halvings that occurred to date and the recent halving occurred on May 11, 2020. The next halving is estimated to occur in early 2024.
Here is a brief visual history of bitcoin halving:
How Bitcoin Halving Works?
Now, let's discuss the working of the bitcoin halving process.
As we all know, the bitcoin blockchain technology is not controlled by a person or an organization. It is rather governed by the programming code developed by Satoshi Nakamoto and currently managed by the miners of bitcoin.
In the code, Satoshi Nakamoto added some instructions that describe the halving process. During the transactions made by bitcoin users, some transaction fee is given by the user to the miners.
Similarly, there are about 500 transactions in a block and when the last transaction of a block is completed, some bitcoins are given to the winning miner as the block reward. The first block that was mined in 2009 is known as the Genesis Block and the miner of this block was given a block reward of 50BTC.
Bitcoin halving occurs once every 210,000 blocks are mined. This means it occurs roughly every four years. This reduces the miner's reward to half of the previous one and also regulates the pace at which new bitcoins come into circulation.
What Are the Effects of Bitcoin Halving?
The halving process has its effects on all the entities taking part in the process of bitcoin transactions. Let's discuss its effects in detail below.
Initially, the block reward was set 50BTC, then it came to 25, 12.5, and now 6.25. This reduces the pace at which new bitcoins come into circulation. Thus not giving inflation to bitcoins, unlike other fiat currencies which show huge inflation within a very short period. The slow release of bitcoins will not allow inflations and at the same time, new communities will be joining the crypto world. This will increase the price of bitcoin in the future.
For miners, it seems like their incentive is reducing every four years. But it is not like that. In the initial days of bitcoin when 50 bitcoins were given as block rewards, the value of one bitcoin was low, and now when 6.25 bitcoins are given as block reward, the value of one bitcoin is high. It means the miners' incentive is not reducing. It is increasing day by day as new users are joining the bitcoin community.
It took nearly 13 years for about 19 million bitcoins to come into circulation but the next 2 million bitcoins will be mined by 2140(about 120 years). This is the main reason why bitcoins will not inflate in the future. Its price will be constantly increasing making it the most powerful cryptocurrency in the world.
Wrapping Up?
In the traditional financial system where the governments inflate the market with money, you feel like you have more wages now and thanks to the government that it is working for you. But it's not the case always. The government generally brings new currencies into circulation just to make you realize that you are earning a high amount than that in the time of the previous government.
This hides the corruption and inabilities of the government to increase your wages. It is not the case with bitcoin, the halving process increases the purchasing power of bitcoin by inflating the price.
Now, I want to hear from you. What do you think of the halving process? Is it making bitcoin the best alternative to traditional currencies? Is it affecting the miners in any other way? Let me know in the comment section. It's just for you.
Other posts that might be interesting for you,
What Is Cryptocurrency Mining? Understand It as a Beginner.