You may have heard of “halving Bitcoin”, but you don’t know what it is exactly. In it, we explain what the event is and explore what it might mean for the price of cryptocurrency.
What is Bitcoin halved?
Bitcoin is limited to its offer, only 21 million Bitcoin will be created to exist. This distinguishes Bitcoin from national currencies which can create an unlimited supply; making it a deflationary asset.
To “create” Bitcoin tokens, Bitcoin miners use computer devices to solve an algorithmic puzzle that rewards them with Bitcoin tokens.
The first Bitcoin reward, known as a block reward, was 50 Bitcoin (BTC) and could be done using a laptop. Back then, Bitcoin was not worth much.
Now, bitcoin mining is a much more complex process that requires specialized equipment and a lot of energy and electricity. The block reward is also no more than 50 BTC – at the moment it is only 12.5 BTC.
Each time 210,000 blocks of Bitcoin are mined, the block reward is halved. This is called “Bitcoin Halving”. This halving has happened twice.
When is the next Bitcoin halving?
The first time was in November 2012, when the block reward increased from 50 BTC to 25 BTC per block.
The second Bitcoin was Halving in July 2016, when the reward went from 25 BTC to the current reward of 12.5 BTC per block.
The next halving is expected to take place around May 2020 and will see the reward drop to 6.25 BTC per block. This prediction is based on the number of blocks that must be mined until the next halving and the time it takes for each block to be mined.
Why is Bitcoin halving?
If the asset has a finite number of units, then why create it and then halve the reward if they will all be in circulation one day?
Basically, halving Bitcoin slows the production of Bitcoin tokens, which helps maintain value.
If there were too many tokens at a time, each Bitcoin would have little value because there would be too much available without enough time for them to be adopted.