Gone are the days when we had discussions about the legitimacy and utility of Bitcoin. In 2024, we have Bitcoin-based ETFs (Exchange Traded Funds) approved by the Federal Government and institutions like MicroStrategy and Testa have Bitcoin holdings.
In 2021, the maiden cryptocurrency rallied for the second time (first in 2017) during its life, when the pandemic was wreaking havoc around the world. This incident, demonstrating the resilience of the asset, was considered a pivotal event in the history of Bitcoin and other cryptocurrencies. Today is March 22, 2024, and BTC is now at a new all-time high. And all fingers point to the Bitcoin halving event.
This article will explain what this phenomenon is all about and why they differ each time. I will also take a look at the previous halving events and how they affected the crypto market. The article also gives you a reasonable guess of the time and date of the next halving event and how it can impact the crypto market and the global economy as a whole. Let’s get started without any delay.
What is Bitcoin Mining?
To understand Bitcoin halving, you need to first understand Bitcoin mining. Bitcoin mining is a critical process that secures the Bitcoin network and enables the creation of new bitcoins. It involves solving complex mathematical problems using computational resources from participating nodes. Mining involves the following.
When the participants transact with Bitcoin, someone needs to verify those transactions to maintain the integrity of the network. Bitcoin, by definition, doesn’t have a centralized authority to do that. That’s where miners come in. Using large computational resources, miners solve complex mathematical equations and earn the right to verify transactions.
When a transaction is verified, they are bundled into a ‘block’ and added to the blockchain. The miner who adds the block is rewarded for their work (and computational power) with newly created bitcoins (block reward) and transaction fees. The difficulty of the problem adjusts approximately every two weeks, aiming to keep the block creation rate at around one block every 10 minutes.
What is Bitcoin Halving?
Bitcoin halving is a significant event in the Bitcoin blockchain network that occurs after every 210,000 (one-hundredth of the maximum supply) blocks are mined. This will take approximately four years. A Bitcoin halving is characterized by the following.
| Reward Reduction | After each halving event, the block reward is cut in half. This will adjust the reward based on the value appreciation of Bitcoin. In the last halving event in May 2020, the block reward was slashed from 12.5 BTC to 6.25 BTC. |
| Supply Control | The halving event controls the supply of Bitcoin, which will limit the total number of Bitcoins to 21 million. This would mean that while 12.5 Bitcoins were newly created about every 10 minutes between 2016 and 2020, only 6.25 BTCs were added after 2020. |
| Impact on Miners | The halving can have a significant impact on miners. Since their rewards for mining new blocks are reduced, they will be forced to use more efficient technology or higher transaction fees to maintain profitability. |
| Potential Price Impact | There is at least a possibility that Bitcoin halvings can lead to price increases. The argument is that if the supply of new Bitcoins entering the market decreases, and demand stays as it is or increases, the BTC price will go up. |
Why Do the Halving Dates Differ?
As mentioned above, Bitcoin halving events are scheduled to occur every 210,000 blocks, rather than on specific calendar dates. This is a fundamental part of Bitcoin’s monetary policy if you will. The whole mechanism is hard-coded in the Bitcoin protocol, from the very day it came into existence. The timing of halving events can be affected by several factors.
Block Creation Time: While the Bitcoin network strives to create new blocks at the rate of one block every 10 minutes, this is only an average figure. The actual time can vary depending on the probabilistic nature of the mining process. To stabilize the block creation rate, Bitcoin’s core protocol tweaks the difficulty of the mathematical problems approximately every two weeks.
However, changes in the total computational power of the network can still cause the actual block creation time to deviate from this average. The total computational power of the Bitcoin network, also known as the hash rate, can change as miners join or leave the network. A significant change in the hash rate can modify the block creation time.
Also, keep in mind that we can’t say for certain when exactly a particular block will be created and the 21,000th block is no different.
While we can estimate when the next halving will occur based on the average block creation time, the exact date can’t be predicted with absolute precision.
History of Bitcoin Halving Events
As of now, three Bitcoin halving events have occurred. The first halving took place on November 28, 2012. The second halving happened on July 9, 2016, and the third and most recent one occurred on May 11, 2020. Let’s dive into these in search of insights for the upcoming halving event in 2024.
First Halving (2012)
The first halving in 2012 was a significant milestone in Bitcoin’s history. The event marked the beginning of Bitcoin’s monetary policy. After the halving, the block reward has been cut down from 50 BTC to 25 BTC.
The closing price on the day of the halving was $12.201. In the months following the first halving, the network hash rate and difficulty declined as less profitable miners left the scene. By early 2013, Bitcoin entered its first major bull run, surging from $13 to nearly $1,000 by the end of the year. The event demonstrated the potential of the Bitcoin network and the effectiveness of the halving mechanism.
Second Halving (2016)
The second halving in 2016 further reduced the block reward from 25 BTC to 12.5 BTC. The closing price on the day of the halving was around $6500. In 2017, the price of Bitcoin increased significantly, reaching a peak of around $20,000 in December, which was around 3000% gain from the pre-halving price.
This event marked the entry of mainstream investors into Bitcoin and the crypto markets. The event has also set the stage for future halving events and their potential impact on the Bitcoin market.
Third Halving (2020)
After the 2020 halving, the mining reward was reduced from 12.5 BTC to 6.25 BTC. The closing price on the day of the halving was around $8,500. In the year following the event, that is, in 2021, the price of Bitcoin increased significantly.
The event has demonstrated the resilience of the Bitcoin network and its potential to replace gold as a store of value. It has also underlined the repeating pattern of the value appreciation of Bitcoin past the halving events.
When’s the Next Halving?
Yes, I know. Just a while back I said the exact timing of the next halving event cannot be predicted. However, we can estimate the having date with reasonable accuracy using the average block time. If we take the Bitcoin blockchain data for the last two months, which is available for everyone to see, the block time is approximately 9.36 minutes. Based on this the 2024 halving event is estimated to be in mid-April.
What Will Be the Impact of Next Halving?
| Supply Reduction | Everyone is sure about one thing about the 2024 halving– the block reward will drop from 6.25 BTC per block to 3.125 BTC. This reduction will slow down the supply of new Bitcoins. |
| Price Appreciation | Historically, Bitcoin halving events have been associated with price appreciations. The reward-halving will emphasize Bitcoin’s scarcity, creating a demand-driven bull run. |
| Miner Profitability | The halving will affect the profitability of miners. The reduced block reward will clean up some inefficient miners and their computers from mining. |
| Market Attention | The halving event often generates optimism among crypto investors, leading to positive price action, not only for Bitcoin but other big and small cryptocurrencies as well. |
Conclusion
The Bitcoin halving event plays a key role in regulating the reward mechanism and limiting the supply of the largest cryptocurrency in the world. Due to the variability of the rate at which new blocks are added to the Bitcoin network, it is difficult to precisely predict the time of Bitcoin halving. At the same time, a forecast based on the average block time tells us that the event is going to happen by mid-April.
On a fun sidenote, in April, there is a Bitcoin halving party happening in El Salvador, the country that accepts Bitcoin as its official currency. The halving events are expected to continue until all the 21 million Bitcoins are mined, which is estimated to happen by 2140. That’s a lot of halving events to come.
