Save the Date: 20 April 2024, the Bitcoin Halving — Here’s What You Need To Know
A Newbies Guide to What It All Means
A few days from now an event known as the Bitcoin halving will take place.
It’s a process built into the Bitcoin protocol (software) to control the limited supply of 21 million Bitcoins. It will automatically activate around 20th April 2024 and is intended to slow down the rate at which new Bitcoins are created — increasing its scarcity and by default skyrocketing its price (hopefully 🤞).
But what exactly is the Bitcoin halving and how does it work?
The Bitcoin Halving Explained Simply
To understand Bitcoin and the way it works you first need to understand that it didn’t just appear from thin air, even though it may seem like it.
The fundamentals of Bitcoin and its blockchain network were written down by its mysterious founder, Satoshi Nakamoto, in the Bitcoin Whitepaper. A 9-page document written for coders by a coder!
Satoshi baked the halving into Bitcoin’s code and it’s designed to occur every 4 years. During this event, the reward granted to miners for validating transactions and adding them to the blockchain is reduced by half — effectively limiting the rate at which new Bitcoins are created. The current block reward for miners is 6.25 newly minted Bitcoin that was not previously in circulation. This reward will be reduced in half to 3.125 newly minted Bitcoin after April.
Whilst not explicitly mentioning specific details of the halving code in the white paper, it does outline the idea of a limited Bitcoin supply (21 million) and mentions a “reward system” for miners. The halving mechanism itself works as a built-in feature within that reward system.
But what does this all mean for us ‘non-coders’ out there?
Let’s break it down.
What Is the Bitcoin Blockchain?
The Bitcoin blockchain is a decentralised and distributed digital ledger that records all transactions made with Bitcoin. It’s like a live running list of all the Bitcoin transactions ever executed on the network.
Once a maximum number of transactions is reached they are grouped in a block with a reference to the previous block, forming a chain of blocks, known as a “blockchain.” A new block is created about every 10 min.
The blockchain is maintained by a network of nodes (computers around the world), who each have the Bitcoin software installed on them. These new transactions are broadcast to all the nodes on the network who validate them and then add them to their copy of the running ledger of Bitcoin transactions.
What Is Bitcoin Mining?
Bitcoin mining is the validation process the nodes partake in to ensure the accuracy and immutability of transactions, whilst also securing the network.
Miners compete to solve complex mathematical puzzles (proof of work). Once solved, the node then broadcasts the block back to the other nodes who only accept the new block of transactions if all transactions in it are valid.
A hash is created which links the verified block to the previous chain of blocks and the transaction history becomes publicly accessible and verifiable.
Rewards for Mining
Each time a block is verified, the Bitcoin code defines a set block reward for miners who solve the complex mathematical problem. The initial reward was 50 Bitcoins back in 2009.
Unlike traditional currencies like the USD, Bitcoin doesn’t have a central bank to ‘print’ more money. To introduce more Bitcoin into the network and motivate people to keep the system honest, incentives for miners had to be introduced.
At present, miners are rewarded with 6.25 new Bitcoin plus transaction fees for Bitcoin already in circulation. Once all the predetermined amounts of coins have entered circulation (21 million), the incentives will then transition entirely to transaction fees.
Bitcoin Supply
As mentioned above, there will always be a fixed supply of 21 million Bitcoin programmed into the code. Hence unlike USD, no additional Bitcoins can be mined (printed).
At present, approximately 19.6 million have already been mined, leaving a mere 1.3 million Bitcoins left to enter circulation.
The halving has been set for every 210,000 blocks minted or approximately every 4 years. In 2020 the block reward was 6.25 Bit coins but after April’24 it will reduce to 3.125.
By reducing block rewards, the Bitcoin halving helps to control the supply and maintain its scarcity over time.
The Bitcoin halving is an important part of Bitcoin’s design and helps to ensure the long-term stability and sustainability of the Bitcoin network.
What Happens to Bitcoin’s Price After the Halving?
There’s always a lot of anticipation before each halving. Some pundits predict the price of Bitcoin will increase significantly, whilst others are more cautious in their predictions, pointing to the high levels of market volatility and uncertainty that can impact the price of Bitcoin.
Ultimately, the impact of halving will depend on a range of economic, political and social factors that are difficult to predict.
In previous halvings, the price of Bitcoin has increased to all-time-highs over the following 18 months.
But will this time be different?
Bitcoin ETFs are fuelling demand that was not present in previous halvings. This, combined with more and more people waking up to the fact that currencies are slowly getting debased, all adds to demand-side pressure.
What is certain however, is that we’re in for a wild ride following the halving so strap in!
Other Factors to Consider:
- Increased mining difficulty: As the number of new coins decreases, the mining difficulty increases, making it harder for miners to earn rewards.
- Reduced inflation: Bitcoin halving reduces the inflation rate of the cryptocurrency, making it a more scarce asset.
- Increased scarcity: With fewer new coins being generated, Bitcoin becomes a more scarce asset, which could increase its value in the long term.
Why You Should Care About the Bitcoin Halving?
Just by reading this article, you’re part of a new elite group. People may understand that Bitcoin exists but they have no idea of its supply/demand dynamics and what makes it unique.
This knowledge positions you ahead of the curve, able to make informed decisions as the crypto landscape continues to evolve.
The halving cycle is a fundamental aspect of Bitcoin and comprehending it empowers you to navigate the crypto world with greater confidence.
Whether you choose to invest or simply stay informed, this knowledge is valuable. After all, knowledge is power and in the dynamic world of cryptocurrency, being informed can be a significant advantage.
