Bitcoin halving is a condition when the reward for Bitcoin miners (block reward) is reduced by half after completion of mining 210,000 blocks, or occurs every four years. Halving is an important indicator in compiling Bitcoin price projections considering that this activity provides the main signal regarding the current supply of the crypto asset king.
You certainly know that every Bitcoin miner is entitled to a block reward after successfully mining one Bitcoin block. In this activity, the network will implement the bitcoin halving reward for miners who add blocks in their network.
However, why is their “reward” cut in half every four years? Well, in this case, the value of their rewards decreases as the supply of Bitcoin is also limited. As we know, there are 21 million pieces of Bitcoin scattered in this world and it is said that they will be exhausted by 2140. So, it is only natural that their reward value is reduced so that the supply of Bitcoin can survive in the long term.
Since it was first mined in 2009, Bitcoin has experienced three halvings.
The first halving occurred on November 28, 2012, where the miner’s reward from 50 BTC dropped to 25 BTC. Furthermore, the second halving occurred on July 9, 2016 when the block reward was circumcised from 25 BTC to 12.5 BTC.
The last time the bitcoin halving took place was on May 11, 2020, from 12.5 BTC to 6.25 BTC. The next halvening is predicted to occur in March 2024, and seems to be touching 3.125 BTC per transaction block.
Recognizing Bitcoin Halving
The technology that underlies Bitcoin, namely blockchain technology, basically consists of a collection of computers, or nodes, that run the Bitcoin software. This technology contains part or all of the history of transactions that occur on its network.
Blockchain functions as a record of transactions under pseudonyms. So, every transaction can be seen by all parties, but it is difficult to identify the parties who transact on the network. This is because the blockchain assigns an encrypted address to every party transacting on the network.
Each node (network point) that is full, or when a node stores a certain amount of Bitcoin transaction history, is responsible for approving or rejecting transactions on the Bitcoin network. The node will perform a series of checks to ensure that the transaction is valid. This includes ensuring that transactions contain the correct validation parameters.
Transactions occur after all parties operating on the Bitcoin network agree on the block in which the transaction is located. Once approved, transactions are added to the existing blockchain and relayed to other nodes. Well, this consensus algorithm is what we often know as Proof of Work.
As more computers or nodes are added to the blockchain, the stability and security of the technology will increase. Currently, there are more than 10,000 nodes estimated to be running Bitcoin. And so far, the bitcoin halving is the underlying reward that the network can achieve this large.
Bitcoin Mining System
Bitcoin mining process involves a process that can be compared to the process of extracting gold from the bowels of the Earth or fiat money printed by the central bank of a particular country. Bitcoins are “mined” by processing and validating transactions that occur on the Bitcoin network.
Bitcoin mining is the process when people use their computers to participate in forming nodes in the blockchain network as transaction processors and validators. Bitcoin uses a system called proof of work (PoW).
In such a system, miners must prove that they have processed transactions to earn block rewards. But how do they compete for these rewards?
Miners compete with each other to solve computationally intensive cryptographic puzzles. Miners who manage to find the answer to this cryptographic puzzle will add a new “block” to the previous block of transactions. In return, he will receive a number of newly minted Bitcoins.
A faster computer with a certain type of hardware results in a larger block reward. Some computer companies even design special computer chips specifically made for mining or mining Bitcoin. These computers process Bitcoin transactions and they get a Bitcoin halving reward for each transaction validation.
Bitcoin halving is a Bitcoin fraction that will be obtained for every verification of the transaction block. To earn Bitcoin rewards, miners must update the blockchain from time to time by verifying transactions made on the network into “blocks”.
Why is Halving Necessary?
Halving is said to be necessary to control bidding. According to basic economic theory, if coins circulate too quickly, there will be a surplus in circulation, which will cause the coin to fall in value.
Satoshi Nakamoto explained his frame of mind regarding the bitcoin halving is a good way to set the rhythm of Bitcoin offerings. Here’s the content of the email:
“The fact that there are new coins being issued means that the money supply is increasing compared to what was planned, but this does not necessarily lead to inflation. If the money supply increases at the same rate as the increase in the number of money users, then prices will remain stable. If the quantity supplied does not increase as demand increases, there will be deflation and the early adopters of money will enjoy an increase in value.”
Here’s a simple illustration of Satoshi’s way of thinking:
Bitcoin rewards halving (bitcoin halving) → half inflation occurs → lower available supply → higher demand → higher prices → the miner incentive is still there, despite the smaller reward, as the value of Bitcoin increases in the process.
To determine the rate at which the coin is issued, Satoshi uses a logarithmic scale. Therefore, miners need to implement a PoW system by cracking certain cryptography so that each new block transaction they create is validated.
So far, there are 18.36 million Bitcoins in circulation out of a total of 21 million. So, there are only about 2.63 million more pieces that can still be mined. And apparently, Satoshi’s theory of how to mine Bitcoin is bearing positive results.
The price of Bitcoin has been increasing steadily and significantly since its launch in 2009. At that time, Bitcoin was only trading for a few cents, and now its value has exceeded US$64,000 by mid-April 2021.