The 5 Key Takeaways from Bitcoin’s 2020 Halving
The single most important takeaway
1. The Price was largely unaffected
Despite all the hype, the halving was pretty much a “non-event.” As a Bitcoin bull, I actually think this is a good thing for Bitcoin, because any short term price swings cause the “wrong” kind of attention (in my opinion) for Bitcoin and other cryptos.
Here’s a chart of Bitcoin’s price history leading up to (and following) each Halving [series are indexed to 1x at date of each halving]:
Notice how the price might actually go down in the days or weeks following the halving, but a year or two later, the gains have been around 5x, 10x, or 100x relative to the pre-halving price.
2. The Use Case of Bitcoin is still the same and is now more widely recognized.
In his original white-paper, Satoshi Nakamoto described Bitcoin as “a purely peer-to-peer version of electronic cash,” but that’s not the whole story. Anyone familiar with Bitcoin and monetary history knows that Bitcoin isn’t just “cash” — it’s a new, stable monetary system for the entire world.
[Yes, transactions are slow and expensive (which means that scalability is a major challenge), but these problems can be solved with second-layer technologies; just as gold is too slow and expensive to use in everyday transactions, we’ve created paper gold certificates as a lightweight, second-layer technology built on top of the heavy, stable, “gold coins and bars” first-layer. Bitcoin will see similar developments over time.]
Satoshi hinted at the reason for Bitcoin’s creation by embedding a message in the first block (i.e. the Genesis block):
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Satoshi was indicating that central bankers engage in reckless monetary practices that routinely steal from the poor and middle classes to give to the rich.
Bitcoin is an attempt to return power to the hands of the people, with a completely decentralized (i.e. democratic) monetary system that doesn’t selectively favor any group above any other.
In the most recent halving (May 11, 2020), the block producer that mined the penultimate block before the halving, F2Pool, included a very similar message in their block (i.e. block 629,999):
NYTimes 09/Apr/2020 With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue
Again, we see another reference to the growing theft and immoral practices by central bankers around the world. And it’s not confined to a single country — it’s a global epidemic. In fact, F2Pool is based in China; the article they mention cites the US central bank. The original article cited by Satoshi references the UK. And the problem doesn’t stop there.
In 2009, it was Satoshi telling the world that Bitcoin is needed.
In 2020, it was the world agreeing with Satoshi that Bitcoin is needed.
3. The Code works as intended.
In other words, the block reward was cut in half (from 12.5 BTC to 6.25 BTC per block), exactly as everyone expected.
This may not seem important enough to be a “key takeaway,” but consider how valuable it would be to know exactly how many dollars will exist at any given moment in time. You would be able to make excellent decisions with your money, and the decisions to save, spend, invest, or lend would come with far less risk.
Indeed, such knowledge would lead to greater prosperity for all members of society.
The opposite situation — i.e. not knowing how many dollars exist at any point in time (not to mention interest rates, rules & regulations, etc.) — leads to the opposite fate: people don’t know if saving or spending will lead to a better outcome. What if the central bank prints another trillion dollars next week? What if the government doesn’t allow us to use paper bills anymore?
When people don’t have clear expectations of the future, the economy locks up in a state of paralysis: business shut down (and new ones don’t open), people lose jobs, and nobody knows if “saving money” is a good idea or a disastrous one. Indeed, uncertainty is the chief obstacle to progress.
If we built a national (or global!) economy on a guaranteed, 100% predictable monetary system, business would flourish, and employers and employees (and customers) would all thrive.
One of Bitcoin’s most valuable attributes is its fixed, predictable supply schedule. There are no surprises, no broken promises, no shady politicians or bankers. The value of this “certainty” is not to be underestimated.
4. The Incentives shape a predictable future.
Continuing on the theme of predictability, we can expect that a sizable percentage of miners will decide to unplug their machines once the block reward is cut in half. After all, miners exist to make a profit, and their profit comes from selling the bitcoins that they mine.
With the amount of newly-sellable Bitcoins cut in half, many miners are no longer profitable, and we’d expect a lot of them to cease operations. And that’s exactly what happened.
Notice the peak of mining activity the day before the halving (May 10, 2020):
[Also notice that more miners have since returned to take their place (or, somewhat equivalently, existing miners have expanded their operations).]
The key takeaway here is that participants can make good decisions for themselves if they know what to expect in the future.
5. The Awareness of Bitcoin is growing rapidly.
I’m willing to bet that you, whoever is reading this now, were aware of the 2020 halving before it happened, but were NOT aware of the 2012 or 2016 halvings until some time after they happened.
What that says about Bitcoin is that awareness is growing.
I’m also willing to bet that a lot of your family and friends had no idea what the “Bitcoin halving” was in 2020, but I can say with great confidence that the vast majority of them will know exactly what it means when 2024 rolls around.
And the percentage of people who “understand” the Bitcoin halving will be pretty close to 100% by the halving of 2028.
To recap, the five most important takeaways:
- The Price was largely unaffected.
- The Use Case of Bitcoin is still the same, and is now more widely recognized.
- The Code works as intended.
- The Incentives shape a predictable future.
- The Awareness of Bitcoin is growing rapidly.
And as promised, here is the “most important takeaway” that encapsulates the five others:
Focus on the long term — the signal, not the noise.
The 2020 Bitcoin halving was a non-event because everything “relevant” to the 2020 halving already existed in the Bitcoin protocol when it launched in 2009.
If you want to understand Bitcoin, zoom out, and study the events of 2009 ;)
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You can find me on Twitter at AlanHibbard. I tweet about everything.
You can find me on YouTube at Somewhat Scholarly.
