WhaleVest｜WhaleVest 100 Compass｜What is Bitcoin halving?

What is Bitcoin Halving?

Refers to a precoded event that occurs every 210,000 blocks (approximately every four years) in the Bitcoin protocol.

It reduces the rewards miners receive for validating blockchain transactions. This process is designed to control the issuance of new Bitcoins and maintain their scarcity, thereby ensuring a limited supply of BTC. Basically, the halving will cut the BTC rewards offered to miners in half.

In the original Bitcoin white paper published in 2008 by the pseudonymous Satoshi Nakamoto, it was stated that the Bitcoin supply was capped at 21 million. This fixed supply mechanism is to prevent inflation and mimic the scarcity of precious metals like gold. By regulating the rate at which new Bitcoins are generated, the protocol aims to create a deflationary currency with the potential to maintain its value or appreciate over time.

Since the birth of Bitcoin in 2009, Bitcoin has experienced three halving events (or “Halvenings”). The next Bitcoin halving event is expected to occur in April 2024.

The first Bitcoin halving occurred on November 28, 2012. That year, approximately 10.5 million Bitcoins were mined, with each Bitcoin worth approximately $11.

The following year, this figure increased a hundredfold. The second Bitcoin halving occurred on July 9, 2016, and the most recent halving event occurred on May 11, 2020.

As for when the next Bitcoin halving event may occur, many predict it will occur in April 2024.

Halvings therefore play a key role in controlling the rate at which new Bitcoins are introduced into circulation, thereby slowing the production of new coins over time.

When Bitcoin first existed in 2009, miners were rewarded with 50 BTC for each block they successfully added to the blockchain.​

The Bitcoin halving event occurs mainly to ensure the following factors:

To control inflation:

The Bitcoin halving curbs potential inflation within the Bitcoin system. Because when the production of new Bitcoins decreases and block rewards decrease, Bitcoin is more likely to maintain long-term price stability and value, which helps control price inflation.

Scarcity and controllable supply:

Bitcoin was created to be a rare and limited cryptocurrency.Therefore, when Bitcoin halving occurs, there are fewer Bitcoins available, thus affecting its value and supply.

What will happen to your Bitcoin after the halving?

After the Bitcoin halving event, your existing Bitcoin holdings remain unchanged. The halving process does not directly affect the number of Bitcoins you hold. However, it can indirectly affect the price of Bitcoin and every aspect of the cryptocurrency ecosystem. Here are a few reasons why the Bitcoin halving is so important and why people should pay attention:

1. Supply and demand dynamics

The supply side is constrained as the halving reduces the rate at which new Bitcoins are created. This will in turn affect the balance between supply and demand. Basic economic principles state that when supply decreases while demand remains the same or increases, the value of an asset is likely to increase. This expectation of increased scarcity often leads to a surge in investor interest and speculation about Bitcoin.

2. Market volatility

Bitcoin halvings have historically been associated with increased volatility in the cryptocurrency market. Speculators and investors closely monitored market dynamics before and after the event, trying to predict its impact on Bitcoin prices. This anticipation often triggers price volatility and increased trading activity.

3. Impact on miners

Since the reward for mining new blocks has been halved, the profitability of Bitcoin mining has been directly affected. This reduction in rewards may create challenges for miners. Miners need to evaluate the feasibility of their operations after the halving and adjust their strategies accordingly. This often results in a change in the mining landscape, where smaller or less efficient miners may be pushed out of the market, while larger miners with more resources continue to thrive.

4. Technology and community development

The Bitcoin halving is an important milestone, triggering discussion and debate within the blockchain community. It encourages developers and stakeholders to explore innovative solutions to the challenges posed by the ever-changing dynamics of the Bitcoin ecosystem. This drive for technological advancement often leads to the development of new tools, protocols, and initiatives aimed at improving the scalability, efficiency, and security of the Bitcoin network, ultimately promoting its long-term sustainability and growth.

5. Long-term investment impact

For long-term investors, the Bitcoin halving represents a critical event that emphasizes the deflationary nature of the asset and its potential as a store of value.The predictable scarcity caused by the halving mechanism positions Bitcoin as a hedge against inflation and economic instability, appealing to individuals and institutions looking to diversify their portfolios. The halving reinforces the narrative of Bitcoin as digital gold, enhancing its appeal as a long-term investment asset with the potential to significantly increase in value over time.

Get ready for the 2024 Bitcoin halving

Previous halving events have resulted in an increase in the price of Bitcoin. The first halving pushed the price of Bitcoin from $11 to $1,100, and the second halving increased the price of Bitcoin from $600 to $20,000 in 18 months. The third halving caused the price of Bitcoin to rise from $9,000 to about $30,000.

However, the circumstances of each halving may be different, and demand for Bitcoin may fluctuate wildly, especially in light of the coronavirus pandemic, the war in Ukraine, and inflation. All of these factors prove to be an economic test for even the most “stable” assets.

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