Why is Bitcoin Halving important?

Created in 2009 by an anonymous cryptographer under the pseudonym Satoshi Nakamoto, Bitcoin is the biggest and most popular cryptocurrency in the global financial industry today. 

To ensure that the coin remains a good investment in the long run, Nakamoto programmed the Bitcoin halving into its protocol. Take a closer look at what Bitcoin halving is and its importance to Bitcoin’s value below:

What is Bitcoin halving? 

Bitcoin halving is an important event in the Bitcoin blockchain that happens every 210,000 blocks or roughly every 4 years. Here, the block rewards given to miners will be cut in half. This will continue until all the 21 million Bitcoins are minted.

How is Bitcoin mining connected to Bitcoin halving?

Bitcoin mining is one of the main ways of obtaining Bitcoins where miners solve complex mathematical problems in exchange for newly minted Bitcoins. By solving these complex puzzles, miners can earn Bitcoins as a reward for verifying the transactions and updating the blockchain at the same time. 

Each transaction that the miners verify is stored in a block and for every 210,000 successfully verified blocks, the Bitcoin halving process happens.

After all 21 million Bitcoins are mined, the production of new coins will cease, making it scarcer and more valuable as long as the demand for Bitcoin remains or increases. At the same time, miners will no longer receive new Bitcoins but they will continue to receive transaction fees from those who make payments using Bitcoin.

Bitcoin halving dates

Check out the table below to see the past and future halving events that will take place in Bitcoin’s blockchain: 

The next halving event will occur in 2024 where the block reward will be reduced to 3.125 BTC. The last Bitcoin is estimated to be mined in 2140. Right now, three halving events have already happened. Check out below how Bitcoin’s value and block rewards have changed since then:

First halving

The first halving event occurred on November 28, 2012, where the block reward was cut from 50 BTC to 25 BTC. Bitcoin’s value was around $11 that time and within a year, its price increased to $1,100.

Second halving

On July 09, 2016, the block rewards were cut again in half from 25 BTC to 12.5 BTC. By that time, Bitcoin fluctuated dramatically up to $20,000 by the end of December 2017.

Third halving

The latest halving event occurred last May 11, 2020, where the block reward was reduced from 12.5 BTC to 6.25 BTC. This marked the start of another bull run for Bitcoin which reached an all-time high price of $64,863 last April 2021.

Why is Bitcoin halving important?

When you first hear that halving events reduce the block rewards of the miners in half, you might have wondered why Satoshi Nakamoto would program such a thing and why miners continue to process Bitcoin transactions despite the reduced incentives given to them. Take a look at the reasons why Bitcoin halving is important below:

To increase Bitcoin’s value

Since halving reduces the number of newly minted Bitcoins and makes it scarcer, the value of each coin rises. This is why Bitcoin experiences bull runs after halving events. As observed in the past three halving events back in 2012, 2016 and 2020, these expected bull runs often occur a year after.

To help miners operate efficiently

Miners spend great amounts of resources such as electricity and hardware to collect and verify transactions. This is because to produce a hash key that will protect each block, miners use powerful computers to solve complex mathematical problems which consume a lot of electricity.

In short, mining Bitcoin requires high amounts of computational power and electricity which can be costly. Due to this, the only way to compensate miners and help them operate efficiently is to make the value of Bitcoin go up, which can happen through halving events.

In addition, since some miners may stop operating if the value of Bitcoin doesn’t rise during the halving events, the blockchain automatically adjusts the difficulty of the complex puzzles they have to verify to maintain the mining rate which is at 10 minutes per block. By doing this, the electricity needed to power the computers which solve the problems will also decrease.

To decrease the inflation rate

Generally, the purchasing power is reduced during inflation and this is what Satoshi Nakamoto prevents from happening. By limiting the supply of new coins, Bitcoin’s value rises as long as the demand for it remains strong which helps in decreasing its inflation rate. 

For instance, Bitcoin’s inflation rate was 50% in 2011 but it dropped to 12% after the first halving in 2012. It further dropped to 4-5% after the 2016 halving event.

This means that as Bitcoin becomes scarcer, it becomes more in demand which results in a drop in its inflation rate. As the inflation rate decreases, the value of Bitcoin goes up which helps the coin experience bull runs. In other words, by constantly reducing the supply of new coins, Bitcoin will forever remain a deflationary currency.

Learn more about Bitcoin at BTC Post

If you are planning to invest or are currently investing in Bitcoin, it is important to know what Bitcoin halving is and its effects on the market. Bull runs have been recorded following each halving event which shows that it positively impacts Bitcoin’s value despite the decreased incentives of Bitcoin miners. 

However, it is still not guaranteed that its value will continue to climb every halving event. There are still many Bitcoin halving events to come which is why it is important to constantly check the market and be updated with the recent developments within the blockchain. 

The next halving event is set to happen anytime within 2024 and by that time, many developments and fluctuations may happen within Bitcoin’s blockchain. To stay updated and learn more about Bitcoin, check out more articles here at BTC Post!