Bitcoin Halving simply explained
Bitcoin Halving is a significant event in the bitcoin network that takes place every four years. It has an impact on the rewards that bitcoin miners receive. In the following article, we will go into more detail about bitcoin halving, explaining what it is, how it works, and what impact it has on the bitcoin ecosystem.
Bitcoin halving, as the name suggests, means halving the block subsidy for a mined block. This means that miners receive 50% less bitcoin as a reward for verifying their transaction.
Halving mathematically supports the disinflationary supply structure behind bitcoin. There will never be more than not quite 21 million bitcoin.
Halving takes place every 210,000 blocks on the bitcoin network. Assuming an average block time of 10 minutes, halving will occur approximately every four years.
This process will continue until about the year 2140, when the 34th bisection will see the last block subsidy of 0.00000001 Bitcoin (= 1 Satoshi) go to 0.
From then on, miners will only receive the fees, which are paid to execute transactions.
In the first 4 years, miners received 50 bitcoin per block as block subsidy.
After that, there were the following bitcoin halvings:
- November 2012: reduction to 25 bitcoin per block.
- July 2016: reduction to 12.5 bitcoin per block
- May 2020: reduction to 6.25 bitcoin per block
Halving will result in fewer bitcoin being issued over time, making it more likely that the bitcoin price will increase. Assuming no change in demand.
So halving is one of the ways the bitcoin protocol maintains scarcity. The reduced inflation rate and the resulting supply shortage should have a positive effect on the price.
The price should rise as long as demand remains at pre-scarcity levels because only half as many new bitcoin are added every 10 minutes.
Halving in bitcoin mining could result in some miners no longer receiving enough rewards to remain profitable. As a result, they could pull their ASIC devices off the bitcoin network, causing the hashrate to drop.
This could lead to block time becoming longer until the Mining Difficulty is adjusted. Once the Mining Difficulty is adjusted, the cryptographic puzzle that miners must solve will become easier, which in turn will cause the average block time to return to about 10 minutes.
Bitcoin halving is used to transparently control bitcoin inflation and ensure that the number of bitcoin in circulation does not grow too quickly.
Bitcoin halving can also have an impact on the bitcoin price. If the demand for the cryptocurrency is the same and the supply quantity is lower, the price should increase in a free market.
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