This month, the number of new bitcoins being mined each day will halve. Here we look at the history of the halvening and how it could affect the price of bitcoin in the future.
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How are bitcoins produced?
In the coming weeks, the number of new bitcoins being mined each day will halve. To understand why the halvening is so important, you first need to understand how bitcoins enter circulation.
Through a process known as mining, powerful computers attempt computational problems. When these problems are solved, blocks full of transactions get added to the bitcoin blockchain.
If a miner successfully solves a block, they receive freshly minted bitcoin as a reward. The bitcoin reward acts as an incentive to spend vast amounts of energy mining and securing the blockchain.
As of today, over 17 million bitcoins have been mined out of the maximum 21,000,000. Once 21 million bitcoins have been mined, no new bitcoins will ever be created.
What is the bitcoin halvening?
When someone successfully mines a block, they receive a reward in bitcoin. Every 10 minutes new bitcoins enter circulation as a result of a block being solved.
The introduction of these new bitcoins causes inflation, as more units become available to be sold or traded.
When bitcoin was first created, a miner would receive 50 bitcoins for every block. With few bitcoins in circulation at this early stage, bitcoin’s supply began to rise sharply.
Bitcoin halvening is when the block reward decreases by half. A halvening occurs every 210,000 blocks (or around every four years).
We are now approaching the third halvening, where the bitcoin block reward will reduce from 12.5 bitcoins to 6.25 bitcoins.
|Date of halvening||Reward|
|2009 - 2012||50 btc|
|2012 – 2016||25 btc|
|2016 - 2020||12.5 btc|
|2020 - 2024||6.25 btc|
Why take the time to understand halvening?
Bitcoin is a finite asset that takes time and energy to produce. It’s often compared to gold because of these properties.
Every halvening the supply of new coins entering the market is drastically reduced. Historically, this has led to the price of bitcoin increasing.
As the laws of supply and demand dictate, if demand for an asset stays the same but there’s less of it available, the asset’s price will go up. The price inflates even further if demand is increasing at the same time.
Although past performance isn’t an indicator of future results, bitcoin has previously entered bull market territory around the time of a halvening.
Only time will tell how the market reacts this time, but one thing is certain: the third halvening is an important date to keep an eye on if you’re a cryptocurrency trader.