There are currently more than 19,438,900 BTC in circulation, that is, 92% of the total issue, it is guaranteed that the last Bitcoin put into circulation will reach the year 2140.
Halving is “a measure to control and limit the issuance of BTC over the long term.”
What is Bitcoin halving then?:
Bitcoin halving is a phenomenon whereby the reward for mining a block of the Bitcoin network, which is also known as coin base transaction, is reduced by half. It happens every 210,000 blocks, approximately every 4 years. The next halving is scheduled to take place in April 2024.
The halving of Bitcoin is always a highly anticipated moment on the network. Mainly due to the unique nature of the public network's offer and issue program, Bitcoin halvings raise all kinds of speculation about how they will affect the Bitcoin price market and miners' long-term economic incentives.
When will the next Bitcoin halving happen???:
The next Bitcoin halving is expected to occur in April 2024. This time, the current block reward will be reduced from 6.25 BTC to 3.125 BTC. It will be the fourth in the history of the cryptocurrency with the most volume: the first one reduced the block reward from 50 to 25 BTC in 2012, the second - from 25 to 12.5 BTC in 2016 and the third - from 12.5 to 6.25 BTC in 2020.
Understanding Bitcoin halving: how it works
To understand halving, let's first look at how miners receive their Bitcoin rewards.
First of all, it is important to note that, being a Proof-of-work network, Bitcoin depends on miners to validate transactions and include them in blocks. To do this, they must have a specialized mining hardware in operation with which to participate in a race that is a lottery to find the solution to the riddle.
With this consensus mechanism, the winning miner issues the next pending block to the network, which then validates the network of crypto nodes. Once the block is approved, it is added to the blockchain. Each correctly mined block generates a reward, which is currently 6.25 BTC. Miners receive these rewards for each block. That is the figure that determines the rate of issuance of bitcoins (BTC) on the network.
Bitcoin Halving: Why is it important?
The halving of Bitcoin is important mainly because of its repercussion. To understand its importance, we have to study the Bitcoin supply and its deflationary model.
Bitcoin has a limited supply:
The total supply of Bitcoin is limited to 21 million BTC and to date, they are in more than 93% of the circulation supply, which amounts to a total of 19 million BTC. On average, 144 blocks are mined per day, which translates into 900 new BTC per day. This assumes that its current inflation rate is 1.8%. This rate is much more favorable than those of most fiat currencies, which means that your bitcoins do not lose their value over time, as could happen with your dollars, euros or any other currency.
Bitcoin halving promotes deflation
Every four years, the block reward is reduced by 50%. In this way, it is guaranteed that fewer and fewer new bitcoins will be created. This process will continue until the year 2140, when the last BTC will be generated.
With these mechanisms, it is guaranteed that Bitcoin will become increasingly scarce. This is the opposite of what happens with fiat currencies, which governments and central banks can print at will. As the case of gold shows, scarcity can give an asset a much higher value. Thus, Bitcoin was designed in such a way that it was more likely to increase in value over time, rather than being subject to inflation, like fiat currencies. This is the basis of the principle of the relationship between stocks and flows.
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What will Bitcoin halving do?
Since the BTC delivered to miners decreases every four years, they need the price per bitcoin to increase in order to keep their business afloat.
Interestingly, some of the selling pressure on the Bitcoin market price comes from the miners. This is because they usually sell the accumulated BTC to buy and maintain the equipment they need. This can be investments in hardware, such as ASICs, to overheads, such as electricity.
As the block reward decreases every four years in halving, it is logical that the selling pressure of miners decreases in the Bitcoin markets, which can cause the Bitcoin price to swing upwards. The models that predict the effects of halving on the Bitcoin market usually take into account the historical evolution of prices. Although it is not a guarantee for the future, so far the Bitcoin price has always responded positively to halvings.
That said, whenever something important happens, it can also cause volatility. If you stay alert and investigate on your own, no matter what, you will know what to do.
Alejandro O. Asharabed Trucido
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