What Is Bitcoin Halving?
Halving is the process of periodically halving the mining rewards in cryptocurrency projects. These intervals were determined by Satoshi Nakamoto and Bitcoin developers to be every 4 years. Block rewards are distributed with the aim of securing the network by keeping records of transactions and incentivizing miners who confirm transactions and process them on the blockchain. The goal of the halving is to encourage miners to work longer on cryptocurrency projects. If block rewards continue at the same pace without halving, the only payoff that will encourage miners to stay on the network will be transaction fees as the limited supply of these cryptocurrencies will be in circulation much sooner than usual. And this would cause many miners to leave the network and greatly reduce the processing power on the network. Thus, these concepts are interconnected and affect each other.
Bitcoin Halving Dates
From 2009, the year Bitcoin emerged, to the first halving, the block reward was 50 Bitcoins per block. Subsequently, the reward was reduced to 25 Bitcoins on November 28, 2012, to 12.5 Bitcoins on July 9, 2016, and to 6.25 Bitcoins on May 11, 2020.
Miners will be rewarded with 6.25 Bitcoins per block until the next halving in 2024. After that, the reward will be reduced to 3.125 Bitcoins. The block reward is given to the first miner on the network who solves the math problems offered to the miners in the fastest and most accurate way.
This process is repeated approximately every 10 minutes for each mining device on the Bitcoin network. Network Difficulty is adjusted to allow a mining device to solve math problems in an average of 10 minutes. Network Difficulty, calculated by the processing power (hash rate) contributed to the Bitcoin network, is a measure of how difficult it is to generate a Bitcoin block. The higher the hash rate, the more competition there is to create a block on the network. This increases the Network Difficulty. Higher difficulty requires a higher hash rate to mine the same number of blocks. Therefore, there are more miners, which makes the network more secure against attacks.
Does Halving Affect Bitcoin's Price?
Many expect the price of Bitcoin to rise during a halving event. Because, in theory, if supply decreases due to a halving and demand stays the same, the balance of supply and demand pushes the price up. In a situation where less BTC is generated and miners face more costs, the price can be expected to increase as demand increases.
However, when we examine previous price movements during halving events, we see significant fluctuations before, during, and after halvings. There have been price spikes, corrective moves, volatility increases, and even short-term declines. Volatility also depends on market conditions, investor psychology, news, and other factors. The chart below shows the pre-halving, halving, and post-halving prices of Bitcoin.
- After the 2016 halving, it took 526 days for the Bitcoin price to reach $19,650, an ATH for a period of time.
- After the ATH of $19,650, the lowest price was seen after 363 days.
- After the 2020 halving, it took 548 days for the Bitcoin price to reach the new ATH of $69,000.
- After the ATH of $69,000, the lowest price was seen after 376 days.