In this article, I will explain what exactly Bitcoin Halving is, how does it affect the price or the reward system, what will happen when the blockchain doesn’t have any more blocks to mine, and how did the 2020 halving prove a point against inflation.
What is Bitcoin Halving?
Bitcoin halving is a process through which the rewards for mining bitcoin are halved after a set of 210,000 blocks are mined.
As more blocks are mined, reducing the rewards for mining Bitcoin has the role of making sure that the total amount of Bitcoin in circulation doesn’t drastically increase.
This generally happens around every four years until the entire supply of 21 million Bitcoin will be mined.
Does Halving Affect the Price or the Reward System?
Everytime a halving takes place, the trading volumes and the price of the Bitcoin are directly affected, meaning both of them increase.
This is due to the fact that as the supply of Bitcoin decreases, the overall value of the blocks yet to be mined increases.
There have been three halvings so far, with the most recent one taking place in 2020. The next one is predicted to take place in 2024. The current reward sits at 6.26 Bitcoins, but the next halving will drop the reward to 3.125 Bitcoins.
As a result, some predict that the number of Bitcoin miners will also drop, since the incentive will be less attractive or profitable.
What Happens When There Are No More Blocks to Mine?
Around 19 million Bitcoins are mined already, meaning only three million Bitcoins are left for mining.
But as we’ve made this progress, mining has become more and more difficult. As of May 2021, mining Bitcoin has reached a difficulty of around 22 trillion, the highest ever.
This means that the last of the 21 million Bitcoin is predicted to be mined only in 2140. The halving will stop then, obviously, and miners will only focus on validating and confirming transactions.
How Does Halving Help in the Long Run?
It’s a form of poetic justice that the latest Bitcoin halving took place in 2020, a year in which the US increased its money supply by printing trillions of dollars in order to fight the economic crisis.
Printing more money leads to a raise in inflation, which is not good, but Bitcoin itself is deflationary by default.
So the 2020 halving has actually helped to prove a point, which is that Bitcoin may very well be the best tool against inflation.