Bitcoin halving refers to an event when the pace at which new units of the world’s largest cryptocurrency entering circulation is cut in half.
It’s part of an overall strategy to keep the maximum supply of bitcoins fixed, in contrast with fiat currencies like the US dollar, which have essentially unlimited supplies and lose value when governments print too much of it.
A brief history
- 2009 — Bitcoin mining rewards start at 50 BTC per block
- 2012 — The first Bitcoin halving reduces mining rewards to 25 BTC
- 2016 — In the second halving, mining rewards go down to 12.5 BTC
- 2020 — In the third halving, mining rewards drop to 6.25 BTC
- 2140 — The 64th and last halving occurs and no new Bitcoin will ever be created
The halving’s impact on the price of Bitcoin
The debate over whether Bitcoin halvings impact on the cryptocurrency’s price, or whether they’re already “priced in”, continues to rage.
According to the laws of supply and demand, the dwindling Bitcoin supply should increase demand for Bitcoin, and would presumably push up prices. One theory, known as the stock-to-flow model, calculates a ratio based on the current supply of Bitcoin and how much is entering circulation, with each halving (unsurprisingly) impacting on that ratio. However, others have disputed the underlying assumptions upon which the theory is based.
Historically, after previous halving events, the price of Bitcoin has increased — but not immediately, and other factors have played a part.
What happens after the maximum number of bitcoins have been issued?
The last halving is predicted to occur in 2140, after which block rewards will not be in the form of bitcoins. Instead, miners will be rewarded with fees from network users, the people who buy and sell bitcoins, so that they are incentivized to continue processing transactions on the blockchain.