Bitcoin Halvings What They Are, Why They Happen, and Why You Should Care

Blueprint does not include all companies, products or offers that may be available to you within the market. Over the past two decades, he’s reported on energy, cannabis, mining, agriculture and commercial fishing from the Americas, Europe and Asia. The Wall Street Journal, Barron’s, U.S. News & World Report, New Scientist, VICE and other publications have featured his work. You can follow him on Twitter and connect with him on LinkedIn. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

According to University College London’s Centre for Blockchain Technologies, proof-of-stake blockchains use several orders of magnitude less energy. Embedded in the Bitcoin code is a hard cap of 21 million coins. Miners do the work of maintaining and securing the Bitcoin ledger and are rewarded with newly minted Bitcoin. That said, there are also indications that miners could have avenues for increased revenue even if the halving does not lead to a price boom.

The large-scale mining facilities needed to remain competitive require enormous amounts of money and energy. The equipment and facilities need maintenance and people to conduct it. They also need to upgrade their mining capacity to maintain their position in the industry. It became popular with investors once it was noted that there was the potential for gains. Investors poured into the new asset space, creating demand that the cryptocurrency’s designers may not have anticipated. For investors, a halving represents a reduction in the new coin supply, but it also offers the promise of an increase in investment value if the event’s effects remain the same.

He began his financial writing career in 2005 as a marketing copywriter, which is how he refined his investing knowledge and skills. Over the years, he’s written editorial and marketing pieces for many of the world’s leading financial newsletters and publications. His main investing interests are technology, blockchain how do you get bitcoins for free and cryptocurrency. Bitcoin halving was reduced by half, from 6.25 BTC to 3.125 BTC per mined block, on April 19, 2024. There wasn’t much immediate impact on general investors after Bitcoin halving as the price remained stable at around $64,000 per 1BTC.

The price surged after the halving, kicking off another bull run in how paypal fails fraud victims 2021. After Iran launched a missile attack on Israel on April 13, for example, rattling the global economy, bitcoin’s price plummeted 7% in less than an hour. The halving goes all the way back to bitcoin’s origin story, born in the ashes of the 2008 financial crash. Crucially, Satoshi wrote that there would only ever be 21 million bitcoin, so as to temper its inflation and potentially make each bitcoin more valuable over time. At that point, there will be 21 million BTC in circulation and no more coins will be created. “While the halving reduces the reward for miners, it equally lowers the supply of new coins without reducing the demand, notes Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp.

Basics of bitcoin mining

The available supply of fiat currencies rises and falls under the watchful eyes of national central banks, but the total supply of Bitcoin is fixed and immutable. Bitcoin halvings will continue until the reward’s value reaches zero. This reward is reduced by half every four years, hence the term halving. It’s akin to a predictable, scheduled pay cut for these miners.

Investing

It’s also possible that the reward mechanism for Bitcoin could change before the final block is mined. Bitcoin currently runs on a proof-of-work consensus mechanism, which has attracted criticism from the likes of Tesla CEO Elon Musk for its high energy consumption. According to these reports, the near-term effects of the halving may be limited to the bitcoin mining sector, where consolidation could occur as overall hashrate declines due to decreased profitability. The event cut the reward from 6.25 BTC per block to 3.125 BTC per block.

1. It’s akin to a predictable, scheduled pay cut for these miners.
2. However, just because something has happened in the past doesn’t mean it’s guaranteed to do so in the future.
3. The equipment and facilities need maintenance and people to conduct it.
4. Historically, after previous halving events, the price of Bitcoin has increased—but not immediately, and other factors have played a part.

The Fourth Halving – April 2024

Since Bitcoin is not controlled by any one person or group, there must be strict rules about how much Bitcoin is created and how it’s released. The first million Bitcoin were mined by Satoshi Nakamoto in 2009. Since then, over 93% of the total supply has been mined and only about 1.44 million more Bitcoin will ever be created.

Nodes on the Bitcoin network contain transaction history and are responsible for validating new transactions. A block on the Bitcoin network is a group of transactions that bitcoin miners verify by solving a cryptographic algorithm. The process used in the Bitcoin network to verify blocks is a consensus algorithm known as proof of work (PoW). Bitcoin mining is the process that creates new bitcoin tokens.

Each block holds approximately 2,700 transactions, with Bitcoin blocks typically mined at a rate of around 10 minutes. However, during times of high demand, the block turnaround speeds up and the halving draws closer. Conversely, when there are fewer transactions, things slow down, and the projected halving time shifts further away. That means transaction fees currently make up as little as 14% of a miner’s revenue—but in 2140, that’ll shoot up to 100%.

The next halving was in July 2016, and the most recent halving was in May 2020. At the moment, Bitcoin has an inflation rate of best bitcoin exchanges of 2021 less than 2%, which will decrease with further halvings, says David Weisberger, CEO of trading platform CoinRoutes. “One of the most important features of bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech company Chainstone Labs.

Some analysts now estimate that around 704,400 coins are already in the hands of ETFs. Meanwhile, JP Morgan analysts predicted a significant price correction following the halving, arguing that an increase in mining difficulty could push smaller miners out of operation. Mining difficulty is as much as 20% less than anticipated, they wrote—in turn, bringing down the production cost of mining. 2024’s halving took place under somewhat different circumstances, with Bitcoin having surged to an all-time high of over $73,000 a month ahead of the event. Historically, pre-halving Bitcoin prices have usually dropped from an all-time high that was set a considerable time before the halving. The debate over whether Bitcoin halvings affect the cryptocurrency’s price, or whether they’re already “priced in,” continues to rage.

The idea of limiting Bitcoin’s supply stands in marked opposition to how fiat currencies such as the U.S. dollar work. Fiat currencies initially were created with firm rules—to create one dollar, the U.S. government needed to have in reserve a certain amount of gold. There wasn’t much immediate impact on general investors after Bitcoin halved as the price remained stable at around $64,000 per 1BTC. The price of Bitcoin, or 1 BTC, traded at $59,348.70 as of May 3, 2024, at 12 p.m.

Farran Powell is the lead editor of investing at USA TODAY Blueprint. She was previously the assistant managing editor of investing at U.S. Her work has appeared in numerous publications including TheStreet, Mansion Global, CNN, CNN Money, DNAInfo, Yahoo! Finance, MSN Money and the New York Daily News. She holds a BSc from the London School of Economics and an MA from the University of Texas at Austin. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

In the United States, inflation is measured by how much it costs to buy a basket of goods. There is an acceptable inflation rate that is considered good for an economy—usually 2%—but this number is generally a target set by central banks as a goal rather than a reachable figure. The Bitcoin protocol includes a rule that after every 210,000 blocks are mined, the reward for mining a new block is halved. To date, it has taken roughly four years to reach the threshold.