The Bitcoin Halving: What You Need to Know

The Bitcoin Halving: What You Need to Know

One of the defining features of Bitcoin is its built-in scarcity. Unlike fiat (dollars) and altcoins which can be printed or created in unlimited amounts, there will only ever be 21 million bitcoin in existence. This fixed supply is enforced through a process called mining, in which computers around the world compete to solve computationally intensive mathematical puzzles in order to validate transactions and bring new bitcoin into circulation.

The rate at which new bitcoins are created is not constant. It is designed to slow down over time through a mechanism known as “the halving”. This event occurs every 210,000 blocks (roughly every 4 years) and cuts the reward paid to miners for adding a new block of transactions to the blockchain (roughly every 10 minutes).

The most recent halving occurred in May 2020, when the block reward was reduced from 12.5 BTC to 6.25 BTC. This means that miners now receive half as much bitcoin for the same amount of work.

So, what does this mean for Bitcoin and bitcoin holders?

First, it directly impacts the supply of new bitcoins entering circulation. This is good for existing holders. With less bitcoin being regularly created, there is less downward pressure on the price caused by the selling pressure from miners (they need to sell some amount of mined bitcoin to pay for their power and hardware costs). In the past, halvings have often been surrounded by periods of increased price volatility as the market speculates and adjusts to the new supply dynamics.

Second, it affects the profitability of Bitcoin mining. Since miners are earning less bitcoin (revenue) for their efforts, they need to make up the difference through higher prices or lower operating costs. This can lead to consolidation in the mining industry as smaller players are priced out and larger, more efficient operations take over.

Finally, it highlights the importance of the Bitcoin monetary policy. The fixed supply and predictable issuance schedule of bitcoin make it a unique asset in the financial world. While central banks worldwide continue to print money in response to excessive spending and economic downturns, the verifiable and absolute scarcity of bitcoin is a unique and critical factor in its value proposition as a store of value and inflation hedge.

Overall, the Bitcoin halving is an important event in the lifecycle of the world’s largest and most important cryptocurrency. While it may not have an immediate impact on the price or adoption of bitcoin, it reinforces the unique properties that make it predictably scarce and an attractive investment for those seeking a hedge against inflation and economic uncertainty.

Benny Sarnelli - Senior Customer Experience  Leader @ Bitcoin Well

Benny Sarnelli - Senior Customer Experience Leader @ Bitcoin Well

Meet Benny, the Customer Operations Leader for Bitcoin Well. Benny is dedicated to educating and onboarding new users into the world of Bitcoin and is passionate about helping people understand and navigate the world of cryptocurrency.

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