What is Bitcoin Halving?
In order to understand the basic principles of halving, you must first understand the basics of Bitcoin mining.
Briefly, mining is the process that secures the network and verifies the transactions. To achieve more miners (which means more security), there is a reward for each block that created. Miners who solve the cryptographic puzzle get the reward in exchange.
When Satoshi Nakamoto developed the Bitcoin protocol there were two important rules:
First of all, the Bitcoin supply is finite and it is 21 million.
Second, that the number of Bitcoins generated per block i.e. the reward is set to decrease by 50% every 210,000 blocks.
Average 6 blocks are found within an hour. Every 210,000 blocks halving happens that means that every 4 years there will be a halving event.
This basically means that the mining reward will reduce 50%.
For instance, if today a miner receives 12.5 Bitcoins as a reward, after the next halving event he/she will receive only 6.25 BTC.
As a result of this math, the final BTC mining will end by the year 2140.
It will become harder and harder to receive Bitcoin with mining and that may boost the price.
As it becomes hard to receive BTC, it will be more valuable with each halving event.
Why Bitcoin Need Halving Event?
Firstly, it is about the Bitcoin Protocol. There is a solid reason behind it.
Think something that is created quickly and easy to receive.
This means low value because of the law of supply and demand.
Vitalik Butterin (the lead developer of Ethereum) explains halving this way:
“The main reason why this is done is to keep inflation under control. One of the major faults of traditional, “fiat”, currencies controlled by central banks is that the banks can print as much of the currency as they want. If they print too much, the laws of supply and demand ensure that the value of the currency starts dropping quickly.
Bitcoin, on the other hand, is intended to simulate a commodity, like gold. There is only a limited amount of gold in the world, and with every gram of gold that mined, the gold that still remains becomes harder and harder to extract.
As a result of this limited supply, gold maintained its value as an international medium of exchange and store of value for over six thousand years, and the hope is that Bitcoin will do the same.” ~ Vitalik Buterin, Bitcoin Magazine.
Past Bitcoin Halvings and Price Effects
To predict it, we need to look at past halvings.
First of all, I must say that, historically, there is a positive correlation between Bitcoin halving events and its price.
However, Bitcoin halving day did not immediately affect the price of Bitcoin. Instead, the effects are felt months later.
First Halving – 28th November 2012
The first halving event was on 28th November 2012, block rewards decreased from 50 to 25 bitcoins per block.
The Bitcoin price was approximately 12.22 USD in the first halving 28th November 2012.
One year after the halving, 28th November 2013, the Bitcoin price was 1077 USD ( x88 profit in a year).
Second Halving – 9th July 2016
The second halving event was on 9th July 2016, block rewards decreased from 25 to 12.5 bitcoins per block.
The Bitcoin price was approximately 650 USD in the second halving 9th July 2016.
On 17th December 2017, the Bitcoin price was 20.000 USD (x30 from the halving price).
How many Bitcoins are being generated per day now?
At a block reward of 12.5 Bitcoins per block and block time of 10 minutes, miners are currently generate 1,800 Bitcoins a day.
How many Bitcoins are created for now?
Currently, there are 17.581.137 BTC created
Next Halving – May 2020
Currently, the Bitcoin price is 3.940 USD. There are 441 days before the third halving.
Block rewards will decrease from 12.5 to 6.25 bitcoins per block.
How many Bitcoins will be generated per day after the halving?
After the 2020 Bitcoin halving, this number will be reduced to just 900 new Bitcoins per day.
How many bitcoins will there be at the time of the halving?
18,375,000 BTC will have been mined in total. That’s approximately 85% of the total Bitcoin supply.
The Bitcoin Halving and Miners
Miner always want to make a profit from Bitcoin mining. The less the reward is, the less the profit they make if there is no change in the price and the network hashrate.
Ahead of the second halving in 2016, one block mined resulted in new Bitcoin worth around $16,000.
That falled to $8,000 directly after the halving.
However, the network has a balance as the mining difficulty increases, fewer miners will be able to continue.
According to Garrick Hileman, the research head at Blockchain:
“Miners have historically shown a willingness to maintain or increase computing power through halving events because they expect future bitcoin price increases to offset the reduced block reward.”
When we look at the past network hashrate of Bitcoin, we can easily see the increase in computing power.
As a result, there is always a price increase after the Bitcoin halving.
When There Are No More Bitcoins Left to Mine, What Will Happen ?
As I stated above, the Bitcoin mining will end by the year 2140.
On the other hand, miners also taking profits from the transaction fees as they verify them.
As the Bitcoin Network grows, miners can earn a solid amount from transaction fees and continue their work.
In conclusion, Bitcoin will be more valuable after the next halving on 2020 May.
Even though it is hard to predict the exact price, it is possible to have another bull run after the halving.
As seen in the past, we could see some solid profit on 2023-2024.
As I am also a Bitcoin holder, all we need to do is to wait patiently for 2-3 years.
Moreover, there are other news which I will write about in the future that can boost the price ( Bakkt, ETF and, companies like Amazon and Google that going to use blockchain technology).