Byline | Craig Brogan
The Bitcoin halving is an “event” that occurs every time 210,000 blocks on the Bitcoin blockchain are mined, which is approximately every four years. When the halving takes place, the reward for mining Bitcoin is sliced in half.
The purpose behind the halving is to reduce the rate at which Bitcoin can be mined over time, in order to restrict how quickly all of Bitcoin’s 21 million token supply can be mined. When the havling happens, the amount of energy required to mine Bitcoin (which is determined by the mining hash power needed for the process) rises because the difficulty of solving ‘puzzles’ in the algorithm to mine the cryptocurrency increases.
The last halving event took place on May 11th 2020, bringing the block reward down from 12.5 BTC to 6.25 BTC.
The Bitcoin blockchain
To get an idea of what the Bitcoin halving is, it’s important to look at the basic operations of the Bitcoin blockchain and how it functions.
Bitcoin is powered by blockchain technology, which is basically a distributed group of computers (called “nodes”) across the world. Each node holds a part of or the full history of Bitcoin’s network, which means the entire record of Bitcoin is public and not owned or controlled by one single entity. This makes it a decentralized network.
Each node that contains the full transaction history (a “full node”) is involved in accepting or rejecting a transaction in the Bitcoin network. To achieve this, the node performs a series of validations to make sure the transaction is valid – and not a hack or a false transaction.
What is Bitcoin mining?
Bitcoin mining is the way people use their computing power to take part in the Bitcoin blockchain network. Bitcoin uses a “proof-of-work” system which means that miners must prove that they have worked on validating transactions. This is the time and energy involved in running the computing hardware that is used to solve challenging “puzzles”. Every puzzle that is solved is part of the process to validate a transaction. These transactions are combined into blocks, which are then chained together to form the blockchain.
For their mining efforts, miners are rewarded with Bitcoin. Right now, the reward for solving a puzzle is 6.25 BTC. When Bitcoin was first launched in 2008, the mining reward was 50 Bitcoin for each solution. Since then, Bitcoin has gone through three Bitcoin halving events, which has sliced the reward in half.
Bitcoin halving events
The first Bitcoin halving took place in November 2012, slashing the reward from 50 Bitcoin to 25 Bitcoin tokens. At the time, the price of Bitcoin was around $11 for one BTC.
The second Bitcoin halving took place in July 2016, when 420,000 Bitcoin blocks had been mined. This saw the mining reward halve from 25 BTC to 12.5 BTC. The price was hovering between $500 and $1000 for one BTC token for the first few months after the halving and it rose by the end of 2017 for around $20,000.
The third, and most recent, Bitcoin halving took place in May 2020, which took the mining reward from 12.5 BTC to 6.25 BTC per block mined. At the time of the halving, Bitcoin traded around $9,000. By the end of the year, it had risen to $30,000 and eighteen months afterwards, it had risen to its current all-time high value of nearly $70,000.
Approximately a year and a half after each halving, the price of Bitcoin has peaked in the middle of a bull run. The trend points that a bull run follows a halving event, as investors, miners, and traders see the speed of the supply of the token reduced, which triggers demand for the cryptocurrency.
Currently, Bitcoin is facing a downturned market but the next halving, predicted to take place in 2024 will likely trigger a fresh bull run which might send the market to an unprecedented height. Buying Bitcoin before it surges is an advised strategy for traders who want to make profit by purchasing low and selling high. Using a platform like Bitcoin 360 AI is a great way to get to grips with trading before a bull run sets in.