Bitcoin halving explained
Bitcoin Halving occurs when rewards that the miners earn after mining a particular set of bitcoins goes through a halving process. The limit of bitcoins after which the halving process occurs is mining 210,000 blocks.
This process although may not seem very profitable as the rewards are reduced is a necessity as it makes sure that the number of bitcoins mines do not exceed a certain limit. This creates scarcity of the bitcoins and consequently increases its potential value and worth.
As mentioned earlier bitcoin halving is the process in which the reward achieved by mining is reduced to maintain a steady control over the amount of bitcoins mined. In the early 2000’s when the bitcoin technology had newly come into its evolution, the actual reward of mining a block was 50 bitcoins. However the value of this reward per block was maintained until the miners managed to mine the first 210,000 blocks.
This was a great incentive for the miners, but it also led to a massive circulation and production of more bitcoins. Therefore, by 2016 it was decided that the reward achieved per block after mining 210,000 blocks would be reduced to half its initial value. After mining 210,000 blocks, the reward per block was issued as 25 bitcoins.
Similarly in 2016 another 210,000 blocks were mined and then the reward had to be cut down again. The reward per block then became 12.5 bitcoins per block. Since the usual time period of mining 210,000 is four years, the reward happens to reduce its value every four years. The last halving was carried out in 2020 when after the mining of another set of 210,000 blocks the reward further declined to 6.25 bitcoins per block. Keeping the four years interval in mind, the next halving is predicted to take place in 2020.For further information regarding details of bitcoins you can visit the website bitcoin prime.
For how long will this process continue?
Although you might think that this process might continue exponentially for a very long time, this however is not the case. This is because the last halving to occur is decided to take place in 2040. From this year onwards, miners will no longer be rewarded with bitcoins for every block they mine.
Instead, the miners will be paid a certain amount of fees from the people who are using this network to make transactions. In this way miners will be further given an incentive to continue working towards keeping the blockchain updated.
Why is Bitcoin Halving important?
There is a limit to the amount of bitcoins that can be produced and after the production of 21 million bitcoins its supply will tend to cease. This is where bitcoin halving is important as it puts a limitation to the number of bitcoins getting mined and circulated throughout the network.
One might wonder what is the point of mining further blocks if the reward is bound to reduce in value. Although the reward tends to decrease, one must take into account the fact that halving slows down the number of bitcoins being mined. Since less number of bitcoins are mined, the scarcity of it increases which eventually also increases its value.
The increase in the value of each bitcoin is therefore the major incentive for miners to continue mining and adding blocks to the blockchain network. So even though the rewards are halved, the value and price of the bitcoins continue to increase and the miners are kept motivated.
How does bitcoin halving impact the bitcoin’s price?
A directly proportional pattern has been observed between the halving of bitcoin and the surge in the value and price of the bitcoins.
The pattern observed was as follows:
- In 2012 when the first halving took place, the bitcoins experienced a rapid rise in their price which rose up from 11 dollars to 12 dollars.
- The 2016 the next halving took place in which the price of the bitcoins fluctuated from 500 dollars to 1000 dollars which then later continued to rise up to 20,000 dollars the very next year.
- In 2020 when the third halving third halving took place, the value of bitcoins was worth 9000 dollars which showed a rapid rise all the way to 20,000 dollars.
Although halving is not the only factor that fluctuates the prices of bitcoins, however it plays a vital role in determining its worth and therefore keeping the miners motivated.