Halving (Bitcoin)

What is Halving?

Halving is a process in which the reward given to miners or validators in a cryptocurrency network is reduced by half after a certain number of blocks are processed. It is a crucial feature of several cryptocurrencies, including bitcoin (BTC).

What Does It Mean?

The Bitcoin blockchain uses a proof-of-work (PoW) consensus to validate transactions, which rewards miners with a share of the new BTC created in the process and a percentage of the transaction fees as an incentive to participate. Miners can sell their BTC through exchanges for other cryptocurrencies or fiat currencies.

New blocks are added to the chain every 10 minutes. After the creation of every 210,000 blocks on the Bitcoin blockchain – which works out to approximately every four years – the reward is reduced by half. This is what halving means.

The frequency of such events is determined by the number of blocks on the chain rather than specific dates, so estimated halving dates can change slightly based on the pace of block creation.

Blockchains that were created from a hard fork, or spinoff, from the Bitcoin blockchain – such as bitcoin cash (BCH), bitcoin SV (BSV), and litecoin (LTC) – or use its source code also experience halvings.

How Does Halving Work?

The bitcoin cryptocurrency was designed with a cap on its circulating supply of 21 million coins. This aims to create scarcity and support the coin’s value over time. Halving the value of block rewards is intended to limit the supply of new coins so that mining does not become an inflationary influence.

The slow release of the new BTC over many years through halving aims to control supply inflation and create market stability and equitable distribution.

• In 2009, when the blockchain went live, the block reward was 50 BTC.
• In November 2012, at a block height of 210,000, the reward was reduced by half to 25 BTC.
• In July 2016, at a block height of 420,000, the reward was further reduced to 12.5 BTC.
• In May 2020, at a block height of 630,000, the reward was cut again to 6.25 BTC.
• By May 2021, the total number of BTC created had already reached 18.7 million, close to 90% of the total supply.
• In April 2024, at a block height of 840,000, the next Bitcoin halving is expected to take place.

The reward is scheduled to reach zero around May 2140. Miners will still receive a share of transaction fees as an incentive to process blocks.

Non-Bitcoin Halvings

BitcoinSV and bitcoin cash are also due to experience their next halvings in 2024. But other blockchains run on different halving schedules to bitcoin.

The Litecoin blockchain was launched in 2011 from a copy of the Bitcoin source code but with a 2.5-minute block processing time. As this is faster than Bitcoin’s 10-minute processing time, the block reward halves every 840,000 blocks to keep to a four-year schedule.

The first Litecoin halving was in 2015, when the reward was cut from 50 LTC to 25 LTC, and the second in 2019 cut the reward to 12.5 LTC. The next Litecoin halving is scheduled for August 2023 to take the reward down to 6.25 LTC. The Litecoin block reward is expected to drop to 0 by 2142, as it is running two years behind Bitcoin.

Halving on the Dash blockchain occurs every 210,240 blocks, resulting in a reduction in the mining reward every year.

Selected Block Reward Halvings Schedule

How Does Halving Affect Crypto Mining?

As halvings are scheduled by block height, miners know when to expect the reduction in rewards and can plan their mining activity and equipment purchases accordingly. In the past, the value of cryptocurrencies such as BTC has risen in fiat currency terms following halvings, which has allowed miners to continue operating profitably.

Over time, miners’ earnings will depend on transaction fees, which are determined by how much the blockchain is used for transactions and applications.

How Do Halvings Affect Crypto Prices?

As prices for cryptocurrency coins are influenced by supply and demand, the reduction in the creation of new coins that come with each halving tends to support higher prices. For instance, the BTC price has climbed after each of its halvings, and in the period surrounding its most recent halving soared from $5,000 in March 2020 to over $60,000 a year later.

The LTC price has similarly climbed, outperforming the broader crypto market during regulatory uncertainty as traders anticipate its next halving in August 2023.

However, an analysis from digital asset investment firm Greyscale Associates states: “While it may be tempting to view Bitcoin’s halvings as a catalyst for price appreciation… Bitcoin’s price has historically followed an upward trajectory surrounding each halving event, but attributing these price increases solely to the halving oversimplifies the complex dynamics at play.

It serves as a predictable, scheduled event within the Bitcoin ecosystem, around which a multitude of unpredictable factors swirl. Understanding these drivers can equip us with a more comprehensive perspective, fostering informed decision-making within the world of Bitcoin.