A “block” is a file on the Bitcoin blockchain that contains 1 MB of Bitcoin transaction recordsMiner solve a complex maths problem with specialised hardware, producing a random output of 64 characters known as a “hash”. They compete to add the next block, and miners who complete blocks receive Bitcoin in return.

What is Bitcoin Halving?

When the cryptocurrency was first established, miners were paid 50 BTC per block. Early users could easily have been persuaded to mine on the network in this way, even before it was clear how successful it would be.

However, even though it is a digital currency, Bitcoin cannot be mined infinitely. Because there will be only 21 million bitcoins in total. Until the maximum supply of 21 million bitcoins is mined by mining, the amount of bitcoins given to miners is halved every four years. This halving mechanism also ensures that bitcoin is resistant to inflation.

According to the history of Bitcoin halving, the last three halvings took place in 2012, 2016 and 2020. The first Bitcoin halving took place in 2012. With this halving, the reward was reduced from 50 BTC to 25 BTC.

In 2016, halving reduced the reward for each block to 12.5 BTC. Today, 6.25 bitcoins are added to the network every 10 minutes through mining. In 2024, this will drop to about 3.125, and this process will continue until all 21 million bitcoins are mined (estimated to happen around 2140).

Importance of Bitcoin Halving

Logically, each time a halving is completed, the incentive to mine Bitcoin will decrease. Bitcoin halvings, on the other hand, are linked to large increases in the BTC price, incentivising miners to mine more, even if their payouts are halved.

Halving ensures that fewer bitcoins enter circulation over time, making it more likely that the value of Bitcoin will rise (assuming demand levels are stable). This structure of Bitcoin is the opposite of fiat currencies. Fiat currencies traditionally depreciate over time due to inflation.

Bitcoin miners are incentivised to keep mining as prices rise. On the other hand, if the price of the digital currency does not increase and block rewards are not reduced, miners may lose the incentive to create more Bitcoins. This is because Bitcoin mining is a time-consuming and expensive process that requires a lot of computer power and electricity.

Halving & Bitcoin Price Collation

The first halving of Bitcoin took place on 28 November 2012 when the BTC price was around $12. One year after this date, the BTC price rose to around $ 1000.

The second halving took place on 9 July 2016, when the price dropped to $670. One year later, it rose to $2,550. In December of the same year, it hit an ATH of $19,700.

When the last halving took place in 2020, the price of Bitcoin was $8800, but in the following period, it broke new records by rising above $60,000.

Bitcoin & Gold Comparison

Bitcoin is often compared to gold. This is because Bitcoin is a valuable, rare asset that is likely to resist inflation in a similar way to precious metals. The differences are that bitcoin is digital and it is impossible to know exactly how much gold there is in the world. Bitcoin is limited in quantity and the supply plan is also known. There will be only 21 million bitcoins in total.

-Like gold, Bitcoin is mined, but this is done electronically by a global network of computers.

-Approximately every four years, the bitcoin mining reward, also known as the “block reward”, continues to halve. This process will continue until all 21 million bitcoins are mined around the year 2140.

-It is impossible for more Bitcoins to exist. This is where fiat currencies and Bitcoin are diametrically opposed. The issuance of fiat money is at the discretion of the government or central bank. This would probably lead to inflation.