Bitcoin (BTC) is the world’s most popular cryptocurrency. It was released in 2009 and is considered the world’s first mainstream cryptocurrency. Every digital token has unique supply characteristics, and BTC is not exempted. The original creator of Bitcoin implemented a halving process to control the supply; this article will explain what it is and how it works.
What Is Bitcoin Halving?
A unique feature of BTC is that its maximum supply is capped at 21 million units. Once the number of mined tokens reaches 21 million, new ones can no longer be created.
Miners get Bitcoin by using powerful computers to solve complex mathematical puzzles. Every computer that solves the complex hashing puzzle gets rewarded with a specific number of Bitcoins; this number is cut in half every four years, i.e., halving.
When Bitcoin first launched, any miner who solved the complex puzzle and verified a new block was rewarded with 50 coins. But, this number has decreased over the years.
The Bitcoin blockchain has seen three halvings so far:
- From 50 to 25 tokens in November 2012
- From 25 to 12.5 in July 2016
- From 12.5 to 6.25 in May 2020
Bitcoin’s original code doesn’t specify a halving every four years. Technically, it specifies a halving for every 210,000 new blocks that miners unlock. But, it takes roughly 4 years for 210,000 new blocks to be mined, so most people use this interval when defining halving.
Over 19 million BTC tokens have been mined, leaving less than 2 million to reach maximum supply. The difficulty of mining Bitcoins becomes harder with each halving. It’ll take longer to mine the last 2 million or so Bitcoins than it took to mine the first 19 million.
At current halving rates, 2140 is the expected year when all 21 million units will be mined. Once this token reaches maximum supply, miners will stop receiving new blocks. Instead, they’ll only earn fees for helping validate transactions on the Bitcoin blockchain.
When Is the Next One Expected?
The next halving is expected to occur in April 2024. Afterward, BTC miners will receive 3.125 tokens for each new block they unlock. The rewards will keep splitting in four-year intervals down to decimal points. You can observe that the difficulty of mining Bitcoins increases exponentially.
When BTC was new and barely anyone knew it, people could use their PCs to mine and get 50 tokens for each puzzle they solved. But, as more miners flocked to the network, the computing power needed to mine new tokens increased. Every day, consumer PCs became insufficient for the job. Companies began building large server farms dedicated to mining BTC.
As more halvings occur, the competition to mine tokens increases. In turn, the computing power needed to mine new tokens also increases. Mining will become more difficult over time, and it’s important for every miner to note this. Profitability also decreases during bear markets like the type we’ve seen in 2022-23. Always beware of the risks if you’re considering mining, but you can get sizeable rewards if you play your cards right.
Why Does It Matter?
Halving plays an essential role in controlling BTC supply and ensures miners don’t take all available tokens quickly. Instead, the rewards from mining decrease over time, leaving more space for people to take small amounts of tokens by adding their computing power to the network.
This feature has a major impact on BTC price alongside other factors like regulations, government policies, use cases, crypto news affairs, etc.
We have explained Bitcoin Halving, how it works, and its significance to the cryptocurrency ecosystem. At this point, you should be able to explain it succinctly to any interested person.