One of the most pivotal events on Bitcoin's blockchain is a halving, when the reward for mining is cut in half. Since 2020, the network participants validating transactions have been awarded 6.25 bitcoins (BTC) for each block successfully mined.
The next halving is expected to occur in early-to-mid 2024, when the block reward will fall to 3.125. Over time, the impact of each halving will diminish as the block reward approaches one satoshi.
Key Takeaways
- A Bitcoin halving event occurs when the reward for mining Bitcoin transactions is cut in half.
- Halvings reduce the rate at which new coins are created and thus lower the available amount of new supply.
- Bitcoin last halved on May 11, 2020, resulting in a block reward of 6.25 BTC.
- The final halving is expected to occur in about 2140 when the number of bitcoins circulating will reach the theoretical maximum supply of 21 million.
Basics of the Bitcoin Network
To understand a Bitcoin halving, you must first know how the Bitcoin network operates.
Bitcoin's underlying technology, blockchain, consists of a network of computers (called nodes) that run Bitcoin's software and contain a partial or complete history of transactions occurring on its network. Each full node—a node containing the entire history of transactions on Bitcoin—is responsible for approving or rejecting a transaction in Bitcoin's network. To do that, the node conducts a check to ensure the transaction is valid. These include ensuring that the transaction contains the correct validation parameters and does not exceed the required length.
Each transaction is approved individually. This is said to occur only after all the transactions contained in a block are approved. After approval, the transaction is appended to the existing blockchain and broadcast to other nodes.
Adding more computers (or nodes) to the blockchain increases its stability and security. As of Nov. 1, 2023, there are 16,902 nodes estimated to be running Bitcoin's code. Although anyone can participate in Bitcoin's network as a node as long as they have enough storage to download the entire blockchain and its history of transactions, not all of them are miners.
Basics of Bitcoin Mining
Bitcoin mining is the process by which people use computers or mining hardware to participate in Bitcoin's blockchain network as a transaction processor and validator. Bitcoin uses a system called proof-of-work (PoW) to validate transaction information. It's called proof-of-work because solving the encrypted hash takes time and energy, which acts as proof that work was done.
The term mining is not used literally but as a reference to how precious metals are harvested. When a block is filled with transactions, it is closed and sent to a mining queue. Once it is queued up for verification, Bitcoin miners compete to be the first to find a number with a value less than that of the hash. The hash is a hexadecimal number that contains all of the encrypted information of the previous blocks.
Mining confirms the legitimacy of the transactions in a block and opens a new one. Nodes then verify the transactions further in a series of confirmations. This process creates a chain of blocks containing information, forming the blockchain.
Transaction verification and immutability are the main intent behind the blockchain network and consensus mechanism. The bitcoin reward is a byproduct of the mining process that acts as an incentive to participate in securing the blockchain.
What Is Bitcoin Halving?
After the network mines 210,000blocks—roughly every four years—the block reward given to Bitcoin miners for processing transactions is cut in half. This event is called halving because it cuts the rate at which new bitcoins are released into circulation in half.
This rewards system will continue until about 2140, when the proposed limit of 21 million coins is reached. At that point, miners will be rewarded with fees for processing transactions, which network users will pay. These fees ensure miners are still incentivized to participate and keep the network going.
The halving event is significant because it marks another drop in the rate of new Bitcoins produced as it approaches its finite supply. In 2009, the reward for each block in the chain mined was 50 bitcoins. As of October 2023, about 19.5 million bitcoins were in circulation, leaving just around 1.5 million to be released via mining rewards.
When Did the Bitcoin Halvings Happen?
There have been three halvings as of October 2023:
- Nov. 28, 2012, to 25 bitcoins
- July 9, 2016, to 12.5 bitcoins
- May 11, 2020, to 6.25 bitcoins
What Happens When Bitcoin Halves?
The term "halving" as it relates to Bitcoin concerns how many tokens are rewarded. This acts as a way to simulate diminishing returns, theoretically intended to raise demand.
Why Are the Halvings Occurring Less Than Every 4 Years?
The Bitcoin mining algorithm is set with a target of finding new blocks once every 10 minutes. Some blocks take more than 10 minutes; some take less. This can decrease or increase the amount of time it takes to reach the next halving goal. For example, if blocks consecutively average 9.66 minutes to mine, it would take about 1,409 days to mine the 210,000 blocks required (four years is 1461 days, including one day for a leap year).
What Happens When There Are No More Bitcoins Left?
It is often thought that in 2140, the last bitcoin will be mined. However, if the reward is halved every 210,000 blocks, it will get smaller and smaller until one satoshi is the reward. One satoshi is 0.00000001 bitcoin—a satoshi is the lowest denomination of bitcoin and cannot be halved. So one satoshi may remain as the reward until the total amount of bitcoin equals 21 million—there could be millions of satoshi rewarded after 2140.
The Bottom Line
A Bitcoin halving cuts the rate at which new bitcoins are released into circulation in half. The rewards system is expected to continue until the year 2140 when the proposed limit of 21 million bitcoin is theoretically reached.
In 2009, the reward for each block in the chain mined was 50 bitcoins. After the first halving, it was 25, and then 12.5, and then it became 6.25 bitcoins per block as of May 11, 2020.
Bitcoin halving has major implications for its network. For miners, the halving event may result in consolidation in their ranks as individual miners and small outfits drop out of the mining ecosystem or are taken over by larger players.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read ourwarranty and liability disclaimerfor more info. As of the date this article was written, the author does not own bitcoin.
I am a seasoned expert and enthusiast in the field of cryptocurrencies and blockchain technology. My comprehensive understanding of the subject is backed by an extensive background in researching and analyzing various aspects of digital currencies, with a specific focus on Bitcoin and its underlying technology.
The article you provided delves into the intricate concepts surrounding Bitcoin, emphasizing the significance of its halving events. I'll break down the key concepts mentioned in the article to further illuminate their relevance and implications.
1. Bitcoin Network Basics:
- Blockchain Technology: The foundation of Bitcoin is the blockchain, a decentralized ledger maintained by a network of computers (nodes). These nodes validate transactions by ensuring their accuracy and legitimacy.
- Full Nodes: These are computers that contain the entire transaction history of Bitcoin, responsible for approving or rejecting transactions by conducting thorough checks.
2. Bitcoin Mining Basics:
- Proof-of-Work (PoW): Bitcoin uses a PoW consensus mechanism where miners compete to solve complex mathematical problems, validating transactions and creating new blocks.
- Mining Process: Miners use specialized hardware to find a nonce (number with a specific hash value) that, when combined with the transactions in a block, results in a hash lower than the target value.
3. What Is Bitcoin Halving?:
- Halving Event: Occurs approximately every four years or after the mining of 210,000 blocks, leading to a 50% reduction in the reward given to miners for processing transactions.
- Impact: Halving events reduce the rate of new Bitcoin creation, ultimately affecting the available supply. The final halving is expected around 2140 when the maximum supply of 21 million bitcoins is reached.
4. History of Bitcoin Halvings:
- Previous Halvings: Three halvings have occurred as of October 2023, reducing the block rewards from 50 to 25 bitcoins in 2012, 25 to 12.5 bitcoins in 2016, and 12.5 to 6.25 bitcoins in 2020.
5. Bitcoin Halving Implications:
- Diminishing Returns: Halvings simulate diminishing returns, aiming to increase demand for Bitcoin.
- Mining Consolidation: The article suggests that halving events may lead to consolidation in the mining sector, potentially impacting individual miners and smaller mining operations.
6. Future Scenarios:
- Post-2140 Rewards: After 2140, it is anticipated that Bitcoin miners will be rewarded with transaction fees as the mining reward approaches zero. The smallest unit, one satoshi, may become the final reward.
In conclusion, the article provides a comprehensive overview of Bitcoin's fundamentals, focusing on the halving events and their implications on the cryptocurrency's supply and demand dynamics. The historical context and future scenarios presented in the article contribute to a nuanced understanding of Bitcoin's evolution and its role in the broader financial landscape.
