What is halving?

Halving is an essential phenomenon of the Bitcoin protocol, which takes place every four years or so.
It consists in 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 fundamental term in the world of Bitcoin.

The origins of halving

 

The Bitcoin protocol contains a number of rules written into its code that cannot be broken.
The first of these is the limit on the number of Bitcoins: there will never be more than 21 million Bitcoins in circulation.
It is this notion of scarcity that makes bitcoin so valuable.

 

It is generally estimated that these 21 million bitcoins will be issued in 2140 – although the exact date is unknown to everyone.
How is this estimate made?
Crypto-assets established on proof-of-work algorithms are produced by miners who operate one or more nodes with the aim of receiving a reward.

 

Originally, the Bitcoin network’s initial block reward was 50 BTC.
But a special clause in the protocol, another rule that cannot be transgressed, causes this reward to decrease over the years: this is halving.

 

How does halving work?

 

Every 210,000 blocks, the miners’ reward for maintaining the Bitcoin network is halved.
Halving therefore serves a dual purpose: it limits the quantity of new Bitcoins in circulation on the network, and ensures the longevity of the blockchain.

 

Since a new block is created every ten minutes on average, halving generally corresponds to a duration of four years.
There’s nothing you can do to prevent halving, as it’s built into the crypto-asset’s source code: rewards are automatically halved when halving occurs.

 

What were Bitcoin’s halving points?

 

So far, there have been three halvings in the history of Bitcoin, since the launch of the first block – the Genesis block – on January 3, 2009, which instituted a reward of 50 BTC per new block:

 

• The first halving took place on November 28, 2012, after 210,000 blocks had been mined, and miners’ earnings fell to 25 BTC per block.
• The second halving took place on July 9, 2016, after 420,000 blocks had been mined.
  Miners earned 12.5 BTC divided between them.
• Finally, the third and last halving to date took place on May 11, 2020, after the 630,000 block had been mined.
  The reward is now 6.25 BTC.

 

The next halving of Bitcoin should therefore take place in 2024.
Continuing at the same rate of halving every four years or so, the last Bitcoin would be mined in 2140.

 

What impact will this have on the network?

 

Regulating the number of bitcoins in circulation and the rewards for miners are the two main consequences of halving.
But halving can also have a significant impact on the price of a crypto-asset: the number of bitcoins produced becomes rarer, and consequently its price rises.

 

A law of supply and demand that significantly boosted the price of bitcoin during the first three halves, even creating a veritable “bull run” for bitcoin.
The fluctuations of the last few halves are proof of this:

 

• November 28, 2012, first halving: bitcoin price rises from around $60 to over $100 in the following weeks
• July 9, 2016, second halving: the price of bitcoin doubles from $600 in June to around $1200 by the end of July
• May 11, 2020, the third and final halving: the price of bitcoin approaches $9,000, rises to $25,000 in the following months and, in April 2021, a year later, reaches $63,000.

The changes included in the halving © Coinmarketcap/Capture d’écran  Concrete upward trends have thus taken place with each halving: remember the date of the next one, in the spring of 2024, to see the markets panic and Bitcoin take off again!