Halving: A process of dividing the generated reward for mining the cryptocurrency like Bitcoin block in half.
The Bitcoin creator Satoshi Nakamoto’s idea was to invent a self-sustaining system, so Bitcoin is designed to simulate commodities like gold that has a limited supply. Every year it becomes harder and harder to mine gold, that’s why it retains its value. Bitcoin halving serves the same goal. By reducing the mining block reward 50% approximately every 4 years halving is maintain the total number of Bitcoins, which according to the protocol can not exceed 21 million.
To put it simply, mining means solving a mathematical problem using special technical equipment. For every block’s problem solved a miner gets a reward in BTC. The more miners are fighting for a reward, the harder it becomes to solve the problem.
If coins are unlimited in number or created too quickly Bitcoin will eventually lose its value. By reducing the reward halving naturally solves this problem.
It’s important to know that halving Bitcoin is scheduled at the height of the block, and not the specific date and happens every 4 years. It occurs every 210,000 blocks and reduces the reward by 50% each time. The day, when the number which miners are awarded per block is halved, is called Carving.
In 2009 the initial mining reward was 50 BTC for a block. The first halving event took place on 28 November 2012, the reward was reduced to 25 BTC. The current award, which was set on 09 July 2016, is 12.5 BTC. The next halving is predicted to happen in May 2020, and the reward for mining a block will be 6.25 BTC. It is expected that all Bitcoins will be mined in 2140.
But how does halving affect the Bitcoin price? Reducing the reward by half affects the number of miners who receive Bitcoin rewards, and has historically had a positive impact on the price of BTC in the long run. Mining is an energy-demanding and costly process while the block reward is the main incentive for mining. The market didn’t see the significant BTC price drops after halvings as they might make miners unprofitable.
The first halving reward drop led to a famous 2013 price rally – from USD 13 to USD 260 per Bitcoin in four months. On the day of 2016 halving the BTC/USD price was at 647 before it went to an all-time high USD 19,891 in December 2017.