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What is the Bitcoin Halving?

In a nutshell: What is the Bitcoin halving?

The Bitcoin halving is an event that reduces the rewards provided to Bitcoin miners for successfully verifying a batch of transactions – also known as adding a new block to the chain.  

The event occurs approximately every four years and profoundly impacts the supply of BTC. The blockchain’s code determines that the number of Bitcoin issued to a successful miner halves every 210,000 blocks until approximately the year 2140.  

The basics of the Bitcoin blockchain 

Bitcoin is a network of decentralised computers working together to validate transactions and ensure the blockchain’s transaction data is secure and up-to-date. Every one of the computers, called a “node”, uses a copy of the Bitcoin ledger which is updated with new transactions and wallet balances regularly. When a Bitcoin user sends BTC, the transaction is added to the distributed ledger, verified and then committed to the Bitcoin blockchain. 

Bitcoin miners 

New Bitcoin transactions must first be verified before they are permanently added to the blockchain. This process is necessary to avoid issues like double-spending and security breaches, while ensuring transactions can occur without needing a central intermediary.  

Miners are responsible for validating that all new BTC transactions are legitimate. This is achieved through a process called “consensus”. To gain consensus, miners must prove their work contributing to the blockchain by solving a complex equation (hash function). This algorithm can only be solved through brute force, so powerful computers spit out thousands of answers until they eventually come across the correct one. The mechanism is known as “Proof of Work” and differs from Proof of Stake which Ethereum made the transition to in 2022.  

Bitcoin block rewards 

Whenever a miner successfully solves a hash function, they get a certain amount of new Bitcoin (BTC), which adds to the total BTC supply. Every four years, the amount of BTC given as a reward is cut in half, reducing the new BTC entering circulation. This encourages miners to keep supporting the network’s security. 

When Bitcoin first launched, miners received 100 BTC for each block, a huge amount considering today’s price (approx. $90,000 AUD). By November 2012, when Bitcoin’s blockchain hit 210,000 blocks, the reward halved to 25 BTC per block. This halving continues, dropping to 12.5 BTC in 2016, 6.25 BTC in 2020, and will be 3.125 BTC in April 2024. 

Bitcoin mining rewards after each halving.

What will happen when every Bitcoin has been mined? 

Satoshi Nakamoto originally designed Bitcoin with a maximum supply of 21 million Bitcoin — no more will ever exist beyond this number.  

The framework of the Bitcoin blockchain ensures BTC is made available at a consistent pace. Based on this, the last BTC will be mined and enter circulation in the year 2140. Miners will continue to be incentivised by increasing mining fees to offset the loss of BTC rewards.  

Theoretically, if Bitcoin’s demand increases, the lack of new BTC entering into circulation will continue to increase the coin’s rarity – and therefore price.  

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