What is a Bitcoin halving and why?

Halving is the mechanism written in the Bitcoin code by which the amount of bitcoins that miners receive as a reward for their work (newly created bitcoins) is halved. This reduction occurs every 210,000 blocks (roughly every four years) and its purpose is to reduce the rate of issuance as part of the Bitcoin money supply.

1 What is a halving bitcoin?

This mechanism is one of the pillars of the Bitcoin Cash proposal, and it is very different from money as we knew it before. The halving fulfills the function of reducing Bitcoin (BTC) emissions over time, while heading towards its limit of 21 million BTC that may exist.

The expected fate of Bitcoin, in terms of monetary emissions, has been tracked by its creator, Satoshi Nakamoto, since the beginning. As explained in the white paper, Bitcoin’s founding document: “Once there is a predetermined number of coins in circulation, the incentive can move completely to transaction fees and be completely free of inflation.”.

Halving is exactly the mechanism that ensures this transition, causing the number of coins entering the trading system to gradually decrease for each certain number of blocks.

For this, Halving is one of the main differences in Bitcoin with the way it is made paper money. The same thing we are used to: the central bank of a country decides to inject any amount of money into the economy, whenever it wants and without limits. Bitcoin goes against inflation (going from controlled to none at all), while fiat money feeds on it.

Bitcoin cash issue

There will never be more than 21 million bitcoins (fractional few, in fact). From this point more than 19 million have been issued. The halving ensures that less and less coins are generated until this goal is reached. After each halving, the amount of BTC issued in that period is reduced.

2 How does halving work?

Bitcoins are issued through mining. This is an activity that specialized computing equipment “works” with its processing power Add information blocks (in which transactions are confirmed) About every 10 minutes.

These blocks include transactions in which another user sends any amount in BTC in exchange for a commission or fee that goes to the miners. But the latter also receives as a reward the newly issued BTC in that block (which until then was not part of the Bitcoin money supply) through a transaction known as Coinbase. There is only one such type per block.

When this digital money tool started operating, every bitcoin block produced 50 bitcoins that went to miners. After the first halving, which took place in 2012, this number became 25 BTC per block; It then dropped to 12.5 in 2016 and currently, after the third halving, has a reward of 6.25 bitcoins per block that is still valid in 2022.

El Halving There is no separation between bitcoins

If you are wondering how this affects the bitcoins you have in your wallet or those deposited in an exchange, the answer is: No. The halving applies only to the exhaustion of newly issued bitcoins as rewards to miners. The transaction history and Bitcoin in circulation remain the same.

3 How many halvings will a bitcoin have?

the total, Bitcoin will end up trying 33 halvings before there are no more coins to mine. The latter will happen around the year 2140, after those 33 cuts to miners’ bonuses have already occurred.

Closest thing Scheduled to take place around April 4, 2024. It will be the fourth halving in history and the reward will be 3,125 BTC per mined block. Any calculation of this date is approximate, considering that the 10 minutes between which each block is mined is not accurate either.

After that, the fifth halving will come in 2028. At this point, the reward will be set at only 1.5625 BTC; Then by 2032, less than 1 BTC per block will begin to be delivered to miners.

Despite the 50 halving figure in this image, there will only be 33 halvings before there are no more bitcoins to mine. Source: cointribune.com.

4 How does halving affect the price of bitcoin?

Although halving is an essential part of the bitcoin money supply, BTC price has no direct relation to this event. In particular, because the Bitcoin network’s value proposition as a tool (which includes the monetary proposition) is not the same as the way the market sets a price for each coin in circulation.

However, historically, the behavior of the Bitcoin market has been explained by the law of supply and demand, like any product you can find in a supermarket: the fewer units there are in a product that more and more people want, the higher that product will be. price.

En el caso de bitcoin, esa oferta y demanda se ve como la combinación entre su escasez (el límite de los 21 millones de BTC) y la disminución de su emisión tras cada halving, así como en contraste con el creciente interés de incompradistas y generally. Adoption in general.

For this, Several analysts have identified market cycles of around 4 years for bitcoin pegged to the halving. So far, it has been possible to determine market cycles with some certainty. And in each of them, there were new historical price peaks for Bitcoin. The current cycle is no exception, with BTC hitting a new high of $69,000.

The price of Bitcoin has risen historically while its issuance is less

With each cycle, Bitcoin has reached its all-time high. After the first halving, the cryptocurrency reached $1,000 for the first time; Then the second halving was followed by a rally of $20,000; Now that it has completed its third halving in history, Bitcoin is capped at $69,000.

Historically, after each bitcoin halving reached new price peaks. Source: lookintobitcoin.com.

One of the factors cited by some specialists to distort the idea that these market cycles will continue to repeat themselves in the future is, As the 21 million BTC figure approaches, the impact of the halving on the market should be less. This effect diminishes as there are far fewer bitcoins left to be issued. In fact, there are already less than 2 million BTC left to be issued.

5 What will happen when there is no more halving?

You might think that miners will stop receiving rewards once all BTC has been mined and all halving cycles have been completed. But this is not true. What they will eventually stop receiving are newly issued coins, but They will continue to get rewards in each block through the commissions that users pay for processing Confirm your transactions on the Bitcoin network.

In other words, the network will continue to pay for the work of miners indefinitely, as long as there are remittances between users and miners continue to include them in blocks.

Bitcoin miners receive

In the current cycle (2020-2024), each block includes 6.25 newly created bitcoins. That equates to $400,000 per block during the $69,000 price hike. Before the third halving, the figure was 12.5 BTC, but in dollars it was equivalent to $250,000 with a maximum of $20,000 per coin.

6 Do other cryptocurrencies, such as Ethereum, have the halving?

Halving is not a concept used only in Bitcoin, although it was born with this cryptocurrency. Others, who inherit part of their code from Bitcoin, have this mechanism as well.

This is the case Litecoin, for example, whose halvings occur every 840,000 blocks (As it is mined faster, this number is also reached about every 4 years.) Bitcoin Cash (BCH), a cryptocurrency that originated from the Bitcoin fork, also has the halving in its code with the same terms as Bitcoin.

Other cryptocurrencies with halving are Zcash, Ravencoin or Vertcoin (Litecoin fork).

Among the major cryptocurrencies, not all of them have this mechanism. Even being among the cryptocurrencies that can be mined. Ethereum does not have the halving written in its codeAnd, in fact, this network is set to completely abandon mining as the mechanism for issuing its native cryptocurrency, Ether (ETH).

Not all cryptocurrencies are the same

Before investing, buying or venturing into the world of any cryptocurrency, it is essential to know its basic aspects. If someone tells you about mechanisms like halving associated with a cryptocurrency as a display of its value, they may be lying. Therefore, the recommendation is to study any project well before taking any step in this market.

CriptoNoticias has developed for you a wide range of educational articles on various topics from the Bitcoin ecosystem. These texts explain in detail concepts that may be related to the halving or other topics that may interest you, such as the ones we present below:

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