Blockchain.com wallets, something that makes purchasing Bitcoin possible, reached over 63 million wallet users at the end of December 2020. So, it comes as no surprise that Bitcoin and other cryptocurrencies continue to increase in popularity.
However, Bitcoin is indisputably the most popular cryptocurrency in the world today. Due to its raging popularity and growing value, everything connected to this cryptocurrency has become a hot topic. One such hot topic that’s helpful to familiarize yourself with if you’re going to invest in Bitcoin is Bitcoin halving.
Did you know that it took only four years to mine 50% of Bitcoins, but it will take almost 120 years to mine the remaining 50% of them? Yes, you read that right! And do you know the reason for this? Yes, you guessed it right again, it's Bitcoin halving!
If the words “mining” and “halving” sound too mathematical or industrial to you, you’re not alone. We were once confused, too. Follow along as we break down what Bitcoin mining and halving actually mean, all with the goal of helping you understand how this relates to you and your finances.
Okay, so just be patients as we explain the basics of Bitcoin for anybody who’s new around here (feel free to drop a comment below just to say hi!).
Let’s start with answering the question of “What the heck is Bitcoin mining?” Bitcoins are introduced in the market via the Bitcoin network through a process called mining. This is done by verifying the blocks or group of bitcoin transactions. The people in charge of producing or mining the Bitcoins are known as miners.
What happens is that every ten minutes, the miner who can verify one block of transactions and is able to introduce it in the Bitcoin network gets a reward or incentive in the form of more Bitcoins. Currently, the amount of a miner's incentive is 6.25 BTC.
Bitcoin halving an event that occurs every four years. Basically, after mining 210,000 blocks of Bitcoin or, after every four years, the total number of Bitcoins that the miners can win as a reward gets halved.
This is where the term Bitcoin halving comes from! There have been three halvings as of 2021, with the most recent occurring on May 11, 2020.
Why does this matter? When Bitcoin was introduced in 2009, miners used to get a whopping 50 BTC every 10 minutes as a reward for mining one block of transactions. Then, the first halving event happened,, and the miner's incentive was halved, amounting to 25 BTC per block.
Similarly, the second halving reduced the amount of reward to 12.5 BTC. After the third and latest halving event, the amount of each miner's incentive stands at 6.25 BTC per block of transactions.
This whole process is estimated to end after the mining of almost 21 million Bitcoins, presumably in the year 2140.
Bitcoin halving is one of the most talked-about events in the cryptocurrency community. From the most seasoned investors and finance experts to the newbies on the block, everybody tends to take a keen interest in the event, mainly because it is believed that every halving will lead to a surge in the Bitcoin price.
However, the past trends have shown that Bitcoin generally experiences a bull run after every halving event. For example, during its second halving in 2016, the price of a single Bitcoin was somewhere around $650. On the day of halving, it dropped to $610 and then reached an all-time high of $20,000 by December 2017.
Similarly, during the latest halving in 2020, Bitcoin was trading at nearly $8,500. Six months later, it started a bull run, and as of the writing of this article, the price per Bitcoin stands at $37,649.82.
So, no one can ever tell what is exactly going to happen after every halving event. The theory is that Bitcoin halving results in an increase in the price is based purely on supply and demand. In essence, the idea is that the fewer Bitcoins that there are (after extensive mining), the more valuable those in existence will become.
While there have currently only been three Bitcoin halvings in history, each has been a huge success as they were followed by a considerable rise in the price of each Bitcoin. While this currently appears to benefit those investing in Bitcoin, it’s still somewhat unpredictable and only time will tell whether or not the trend will stay consistent.
Have more questions about Bitcoin? Want to learn more about investing? Drop a comment below to let us know what you’d like to learn about.