What is a bitcoin halving and why is this event important?

A halving, which can be translated into French as “splitting in two”, is an important event of the Bitcoin protocol that occurs approximately every four years. This consists of halving the reward given to bitcoin miners who register new blocks on the blockchain.

How does it work and what is it used for? Coinhouse introduces you to this key term in exploring the Bitcoin universe.

The origin of half-life

The Bitcoin protocol contains a set of rules written into its code that cannot be broken. The first of these is the limitation of the number of bitcoins: there will never be more than 21 million bitcoins in circulation. It is this concept of scarcity that drives most investors to buy bitcoin.

It is believed that these 21 million bitcoins will be released in 2140, although the exact date is not known to everyone. How do we make this estimate? Cryptoassets built on proof-of-work algorithms are produced by miners operating one or more nodes in order to receive rewards.

Initially, the initial block reward of the Bitcoin network was 50 BTC. But a special clause of the protocol, another inviolable rule, reduces this award over the years: it is a halving.

How does halving work?

Thus, every 210,000 blocks, the miners’ reward for maintaining the Bitcoin network is halved. Therefore, sharding has a dual purpose: it limits the number of new bitcoins circulating on the network and allows the longevity of the blockchain to continue.

Since a new block is created on average every ten minutes, the halving generally corresponds to a period of four years. There’s nothing for halving to happen because it’s written into the crypto-asset’s source code: rewards are automatically halved when they happen.

What were Bitcoin halvings?

Since the launch of the first block on January 3, 2009, the Genesis block, there have been three halvings in Bitcoin history, which set a reward of 50 BTC for each new block:

The first halving took place on November 28, 2012, after 210,000 blocks had been mined and miners’ earnings had dropped to 25 BTC per block.
The second halving took place on July 9, 2016, after 420,000 blocks had been mined. The miners then split between themselves and earn 12.5 BTC.
Finally, the third and final halving took place on May 11, 2020, after 630,000 blocks were mined. Therefore, the reward is now 6.25 BTC.

So, the next bitcoin halving should happen in 2024. The last bitcoin will thus be produced in the year 2140, continuing at the same rate of splitting, which occurs approximately every four years.

What are the implications for the network?

Regulating the number of bitcoins in circulation and rewarding miners are the two main outcomes of the halving. But this can also have a significant impact on the price of the crypto-asset: the number of bitcoins produced is lower, and therefore the price of bitcoin increases.

During the first three halvings, the law of supply and demand significantly increased the price of bitcoin, even creating a real “bull run” for bitcoin, which has an upward trend over time. Fluctuations of recent halvings are proof of this:

November 28, 2012, first halving: bitcoin price to go from around $60 to over $100 in next weeks
July 9, 2016, second halving: Bitcoin price rises from $600 in June to around $1,200 in late July
May 11, 2020, the third and final halving: the price of bitcoin then approaches $9,000, hovers around $25,000 in the following months, and reaches $63,000 in April 2021, one year later.

Therefore, bullish trends, which couldn’t be more specific, happened every halving: remember the date of the next one, spring 2024, to see the markets panic and Bitcoin start to rise again!

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