What is the bitcoin halving and why is this event important?

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The halving, which can be translated into French as “division by two”, is an essential phenomenon of the Bitcoin protocol which takes place approximately every four years. It consists of halving the reward given to bitcoin miners who register new blocks on the blockchain.

How does it work and what is it for? Coinhouse introduces you to this fundamental term in discovering the universe of Bitcoin.

bitcoin halving

The origins of the halving

The Bitcoin protocol contains a number of rules written into its code and which cannot be violated. The first of these is the limitation of the number of bitcoins: there will never be more than 21 million bitcoins in circulation. It is this notion of scarcity that makes most investors buy bitcoin.

It is widely believed that these 21 million bitcoins will be issued in the year 2140 – although the exact date is unknown to everyone. How do we make this estimate? Crypto-assets established on proof-of-work algorithms are produced by miners who operate one or more nodes with the aim of receiving a reward.

Originally, the Bitcoin network’s initial block reward was 50 BTC. But a special clause of the protocol, another rule which cannot be transgressed, makes this reward decrease over the years: it is the halving.

How does the halving work?

Every 210,000 blocks, the miners’ reward for maintaining the Bitcoin network is thus halved. The halving therefore has a dual purpose: it limits the quantity of new bitcoins in circulation on the network and allows the longevity of the blockchain to continue.

Since a new block is created approximately every ten minutes on average, the halving generally corresponds to a duration of four years. There is nothing to do for the halving to occur, since it is written into the source code of the crypto-asset: the rewards are automatically halved when it occurs.

What were the bitcoin halvings?

Three halvings have so far taken place in the history of Bitcoin, since the launch of the first block – the Genesis block – on January 3, 2009, which instituted a reward of 50 BTC per new block:

  • The first halving took place on November 28, 2012, after 210,000 blocks had been mined and miner earnings had dropped to 25 BTC per block.
  • The second halving took place on July 9, 2016, after mining 420,000 blocks. The miners then earn 12.5 BTC divided among them.
  • Finally, the third and last halving took place on May 11, 2020, after the mining of the 630,000 block. The reward is therefore now 6.25 BTC.

The next bitcoin halving should thus take place in 2024. Continuing on the same rhythm of halving taking place approximately every four years, the last bitcoin would thus be mined in 2140.

What are the consequences for the network?

The regulation of the number of bitcoins in circulation and the reward of miners are the two main consequences of the halving. But this can also have a significant impact on the price of a crypto-asset: the number of bitcoins produced becomes rarer, and therefore the price of bitcoin increases.

A law of supply and demand that significantly increased the price of bitcoin during the first three halvings, even creating a real “bull run”, a bullish trend over time, for bitcoin. The fluctuations of the last halvings are proof of this:

  • November 28, 2012, first halving: the price of bitcoin goes from around 60 dollars to more than 100 dollars in the following weeks
  • July 9, 2016, second halving: bitcoin price doubles from $600 in June to around $1200 at the end of July
  • May 11, 2020, third and last halving: the price of bitcoin then approaches 9,000 dollars, it is around 25,000 dollars in the months that follow and, in April 2021, a year later, reaches the sum of 63,000 dollars

change halving
The changes included by the halving © Coinmarketcap/Screenshot

Bullish trends that could not be more concrete have therefore taken place at each halving: remember the date of the next one, in the spring of 2024, to see the markets panic and Bitcoin start to rise again!

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