What is Bitcoin halving?

To understand what Bitcoin halving is we need to first understand how new Bitcoins are issued into the total supply. As we know Bitcoin has a hard cap of 21 million which means that there will only ever be 21 million bitcoins in total circulation. Currently, there are over 18.2 million bitcoins in circulation which leaves about 2.8 million bitcoins which still have to be issued over the course of time.

Every 10 minutes 12.5 new bitcoins are issued into the circulation as a reward mechanism for miners who validate transactions on the network. This is the incentive mechanism that keeps the whole Bitcoin economy working tirelessly. According to the algorithm, for every 210,000 blocks that are mined the supply issued every 10 minutes is cut in half.

When is it?

Bitcoin has already had two halvings before, it started off with 50 BTC as a reward per block. On November 29th, 2012 it was reduced to 25 BTC and next on July 9th, 2016 to 12.5 BTC. The next halving is set to occur on 12th May 2020 where the reward per block will be reduced from 12.5 to 6.25 BTC.

A reduction of 6.25 BTC per block may not sound like much but when you add it up over a long period of time it adds up to a huge amount. If 6.25 BTC is issued every 10 minutes, 900 BTC is issued every day and 328,500 BTC every year until 2024, at the current price of Bitcoin ($5740) this adds up to $1.1 Billion which will no longer be part of the supply.

Here are some of the important data points to remember (at the time of writing):

Total Bitcoins in circulation: 18,276,713
Total Bitcoins to ever be produced: 21,000,000
Percentage of total Bitcoins mined: 87.03%
Total Bitcoins left to mine: 2,723,288
Total Bitcoins left to mine until next blockhalf: 98,288

Source: https://www.bitcoinblockhalf.com/

Supply Demand dynamics

One of the better things about Bitcoin is that the supply schedule is fixed and we know exactly how many coins are in circulation and how many would be issued on a regular basis. The free market decides what the price of Bitcoin will be hence also deciding the profitability of miners in the network.

If the demand remains the same even after the halving then the price should automatically go up due to decreased supply. But no one can predict how much demand will be there in the market hence the price would also be harder to predict. But we can look at the past halvings and use it as a data point to find patterns.

The past two halvings have gone good for Bitcoin in terms of price, the first halving occurred on November 28th, 2012 when the price was $11 a year later Bitcoin was trading at $1100 which is a significant increase. The second halving occurred in July of 2016 when the price was over $600, the next year Bitcoin price hit an all-time high of $20,000.

Conclusion

Unlike Fiat markets where the supply of a currency is determined by central bank policies, bitcoin’s monetary policy is set in stone. While most currencies are inflationary losing a majority of their value over a long period of time, Bitcoin takes the exact opposite approach in being a deflationary asset similar to Gold.

Regardless of global macro trends, political tensions, pandemics, etc the bitcoin economy will keep running as it always has. Bitcoin is without a doubt the greatest monetary experiment in the history of mankind.

 

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