What is a ‘Bitcoin halving’ and what happens on the network?

What is a halving?

Cryptocurrencies like Bitcoin based on proof-of-work algorithms are produced by miners in the Bitcoin network mining new coins. 

The initial Bitcoin block reward for miners was 50 BTC. Over time, this reward has been continuously reduced due to a special “halving” provision in the Bitcoin code. This provision contains that the Bitcoin block reward should be permanently cut in half roughly every 210,000 blocks (or approximately every 4 years). 

The total Bitcoin supply is fixed at 21 million bitcoins in the protocol. This figure is actually based on calculations pertaining to facts that are referenced to in the Bitcoin whitepaper. Consequently, once 21 million bitcoins have been generated by miners in the Bitcoin network, the finite number of Bitcoin that will ever be issued has been reached. 

The purpose of Bitcoin halving, along with the fixed total supply, is to decrease the quantity of new coins entering the Bitcoin network. 

How does Bitcoin halving work?

A halving event is coded into a blockchain protocol from the launch of its genesis block, provided that the network is proof-of-work-based. Fundamentally, this recurring event is specified in only two lines of code, one of which states when a halving happens, while the other specifies when the blockchain involved should stop halving, which for Bitcoin is after 64 times. 

The most recent Bitcoin Halving event took place on 12 May 2020. When the Bitcoin blockchain reached the block the halving was tied to, the event was executed almost instantly and the block reward was decreased by half effective immediately. 

Expected price development

In late 2012, the first halving dropped Bitcoin’s block reward from 50 to 25 BTC. Four years later, Bitcoin’s second halving reduced the network’s block reward by a further 50% to 12.5 BTC. After the most recent halving, the block reward is now 6.25 BTC per block.

While there are general expectations of a Bitcoin price jump during the time of a halving, such a development is by no means a certainty. Basically, this expectation is tied to the law of supply and demand and that an item’s relative price increases upon a decrease in the item’s supply, while other factors influencing Bitcoin price development are equally significant, such as sustainability of mining operations. 

Income of miners

At a predetermined point, the network will move away from block rewards entirely and fund mining through transaction fees alone. All in all, the long-term future of the Bitcoin network depends on the adoption of technology, regulatory developments and numerous other factors. Any far-reaching projections on value and use-cases are more speculative than anything else.