There is alot of questions out there about the bitcoin halving and in this post I am aiming to answer them in simple terms. Some of the most popular ones out there are: What is the bitcoin halving? What does the Bitcoin halving mean? How will the bitcoin halving affect the BTC price?
What is the Bitcoin Halving?
At the very basic level it is not related to the price of bitcoin and it means that the new supply of bitcoin created every 10 minutes will be half of what it is before the halving.
On a macro level in economics terms it does impact the supply / demand scale which which should impact price but I discuss that further down.
High Level Overview of Bitcoin Halving
On a high level new bitcoin is produced every 10 minutes and is rewarded to the miners in the network. When Bitcoin first started the reward roughly every 10 minutes (roughly 10 minutes explained further down in mining section) was 50 BTC and it was set in that every 210,000 blocks the reward would be cut in half. 210,0000 blocks at 10 minutes a block is roughly 4 years and by this the last Bitcoin should not be created / mined until some time around 2140.
Currently as I write this post there are 12.5 BTC mined roughly every 10 minutes which means 1800 new Bitcoin come in circulation every day, after the Bitcoin halving in May 2020 this will be cut in half to 6.25 BTC per block do roughly 900 BTC a day.
Previous Bitcoin Halving’s
|Halving Date||Block||Reward||Mined Daily|
|3rd January 2009||0||50||7200|
|29th November 2012||210,000||25||3600|
|10th July 2016||420,000||12.5||1800|
Why have Bitcoin Halving and reduce the reward?
The reason for reducing the number of Bitcoin produced each day is to make Bitcoin a deflationary asset / currency. The chart below which I got from bitcoinblockhalf.com gives a good visual representation of the Bitcoin inflation vs time.
When we compare the above chart or the stats for Bitcoin to a FIAT currency (eg US Dollar, EURO) then the advantages can be highlighted even more. With FIAT currencies there is no limit on the supply and as we currently see in the virus pandemic they can produce new currency whenever they want which makes FIAT currency inflationary meaning the purchasing power of 1 Dollar today could and would be worth alot less in 10 years, see the chart below as an example
How does the Bitcoin Halving affect the price
There is no way to know for sure how the halving is going to affect the Bitcoin price but in simple economics if the demand stays the same as the supply gets more limited this should in theory push the price of Bitcoin up in the longer term.
Generally on the day of halving we don’t see that much change and as it has been shown in the past we should be zooming out and looking at the bigger picture with Bitcoin and how it performs over the long term as short term there is always volatility both up and down. We can look at previous halving’s for clues and see that over time it has always been good in the longer term for BTC even if it suffers a short term drop directly after the halving. As we are in a worldwide pandemic right now and probably a recession to follow this is unknown territory for a Bitcoin halving but as always I am long term bullish on the price of Bitcoin and even if we have a dip I will be holding on tight to my BTC as long term I am betting a new all time highs and beyond.
The chart below shows the bitcoin halving cycles that we have went through in the past.
The below part about how bitcoin is created is to give more understanding on the roughly 10 minute block time mention above in the article.
How Bitcoin Are Created Mined
At a high level the bitcoin blockchain is managed by a large network of computers which all contain a copy of every bitcoin transaction and they all contribute processing power to verify transactions on the blockchain. For this process they are rewarded the newly created bitcoin which occurs roughly every 10 minutes. I say roughly 10 minutes because it is not a set time and it depends on the hashrate and the the current difficulty.
- Hashrate: without getting technical it is the amount of processing power that is been contributed to the bitcoin network.
- Difficulty: This is a number that regulates how long it takes miners to add new blocks of transactions to the blockchain and it is updated every 2 weeks to bring the average time to 10 minutes.
Example of not 10 minute blocks – if there has been a spike in hashrate (more miners joining the network) it will take less time to find the next block as there are more people looking for it. When the net adjustment happens which is every 2 weeks it raise the difficulty rating so now it takes roughly 10 minutes for that number of miners to find the next block.