What is Bitcoin Halving and How Does It Work? (2024)

Bitcoin Halving is an important event that takes place in the Bitcoin blockchain network.

In the crypto community, Halving is seen as an event that precedes a period of price growth of Bitcoin and other cryptocurrencies.

This is precisely why crypto enthusiasts consider it to be the most important event in the crypto calendar.

The next Halving event should take place in April 2024.

After that, the reward for a confirmed block of transactions will decrease from 6.25 BTC to 3.125 BTC.

In order to better understand how Bitcoin Halving works, it is necessary to take a step back and understand how the Bitcoin blockchain network works.

Bitcoin Blockchain - How Do Transactions Work?

If you want to know all the details, get better acquainted with the basics of Bitcoin, and finally better understand the background of Bitcoin Halving, read our blog:

What is Bitcoin: Blockchain Technology Introduction

The backbone of the Bitcoin blockchain network are the so-called “nodes”.

Nodes represent every computer that uses/runs the Bitcoin network.

Each node has its own copy of the entire history of transactions that took place within the network.

Since each node has a list of transactions, its task is to approve or reject each subsequent transaction (each transaction is processed individually).

When one transaction block is "filled", a node that verifies the accuracy of the data and guesses the cryptographic puzzle that will add the block to the blockchain will send a notification to other nodes in the network that the block has been successfully added.

Bitcoin Mining - Basic Concepts

Bitcoin mining is a process by which new units are issued (generated) and new transactions are verified in the network.

In this process, the network users "borrow" the power of their own computer to participate as so-called validators that will process and add new blocks of transactions on the Bitcoin blockchain network.

The mechanism that Bitcoin uses to confirm transactions is popularly called Proof-of-Work (PoW).

In the process of confirming transactions and adding a new block of transactions, the validator's computer invests the energy and time needed to solve the cryptographic puzzle, which in a way proves that certain work has been done.

Proof-of-Work is often referred to as mining.

The term gained traction and popularity within the cryptocurrency community as the analogy drawn from certain aspects of metal mining resonated with the process of verifying transactions and adding new blocks to the blockchain.

How Does Bitcoin Mining Work?

One block in the Bitcoin blockchain network can accommodate up to 2,000 transactions.

When the block receives approximately 2000 transactions, it is closed and sent to the “mining queue”.

After that, Bitcoin miners (i.e. their computers) compete and try to be the first to guess a combination of numbers whose value is less than one "hash" (a hexadecimal number that contains all the encrypted information of the previous blocks).

This way, the network ensures that all transactions are legitimate.

With this background set, let's proceed to define what Bitcoin Halving is.

What is Bitcoin Halving and How Does It Work?

Bitcoin Halving is a pre-scheduled event that happens automatically, where the reward for mining new blocks is cut in half.

This event is programmed into the Bitcoin code. It states that every 210,000 blocks, or roughly every 4 years, the mining reward decreases by 50%.

Bitcoin Halving will continue until the year 2140, by which time there will be 21 million Bitcoins in circulation.

After reaching this limit, miners will earn rewards through transaction fees paid by network users.

The History of Bitcoin Halving

Bitcoin Halving has always been a part of the Bitcoin system. When Bitcoin started in 2009, the reward for miners was as much as 50 BTC.

The first Bitcoin Halving event occurred in November 2012. At that time, the mining reward was reduced from 50 BTC to 25 BTC.

The second Bitcoin Halving event happened in July 2016. The reward for miners was decreased to 12.5 BTC.

In the third Bitcoin Halving event, the reward was halved to 6.25 BTC.

Why Does Bitcoin Halving Occur Every Four Years?

The reason lies in the Bitcoin algorithm. Even before the Bitcoin network started operating, it was determined that once 210,000 blocks were processed on the network, a Bitcoin Halving would occur.

Considering the average time of 10 minutes needed to add a new block, this results in a period of about four years (the time it takes to process 210,000 blocks).

When Will the Next Bitcoin Halving Occur?

The next Bitcoin Halving event is expected to occur in the third week of April 2024, when the block height (i.e. the total number of blocks ever created and included in the main blockchain) will be 840 000.

After that, the reward for miners will decrease from the current 6.25 BTC to 3.125 BTC.

Why is Bitcoin Halving Important?

As is already known, the total number of BTC cryptocurrencies that can ever exist in circulation is 21 million.

This makes Bitcoin a deflationary asset, which is the opposite of the fiat currencies we use daily (there is no limit to the number of new banknotes that can be put into circulation).

Bitcoin halving helps reduce the rate at which new BTC units can come into circulation. This ensures the protocol by which the last Bitcoin will be mined in the year 2140.

In short, Halving is one of the ways through which Bitcoin maintains a limited supply.

How Does Bitcoin Halving Affect Bitcoin's Price?

Over the last few price cycles, Bitcoin has entered a period of record price growth (known as a bull run) after each Halving event.

Each time a Bitcoin Halving occurs:

— miner rewards are halved, which ensures a gradual and sustainable growth of the network.

— Bitcoin's inflation rate decreases (fewer BTC units can enter circulation).

Most analysts predict a significant price increase after each halving precisely because the number of BTC coins that can enter circulation is reduced.

Does Bitcoin Halving Affect the Price of Other Cryptocurrencies (Altcoins)?

Historically, Bitcoin Halving has always been associated with the price increase of all cryptocurrencies.

Events like the Bitcoin Halving always attract significant attention in the cryptocurrency market.

Expecting Bitcoin's price to climb, many cryptocurrency investors become optimistic, thinking that the upward trend will extend to other altcoins.

A positive atmosphere in the market can easily lead to increased investment volume in various altcoin cryptocurrencies, resulting in price increases.