Bitcoin Halving: Definition, How It Works, Why It Matters
The Bitcoin halving is a term used to describe the event in which the number of bitcoins mined by a miner per block is cut in half.
What is Bitcoin halving?
Until 21 million bitcoin have been virtually mined (probably around 2140), the amount of bitcoin awarded to miners is cut in half every four years. There is no question that bitcoin is a scarce and inflation resistant resource because of the halving mechanism.
It's not possible to create Bitcoin endlessly. In order for the value proposition to be credible, there must be verifiable scarcity. It is essential to understand two concepts related to scarcity that are fundamental to the Bitcoin protocol. It is important to understand that there will never be more than 21 million bitcoins in existence. The number of Bitcoins left to be virtually mined was less than 2.5 million by late 2020. Additionally, every four years, Bitcoin's supply will be reduced by half. Alternatively, the halving concept may be used.
Through virtual 'mining,' 12.5 new bitcoins were added every 10 minutes at the beginning of 2020. 6.25 was halved in May. The price will drop to 3.125 by 2024, and the process will keep going until all 21 million coins are mined (around 2140, according to estimates).
Why is the Bitcoin halving important?
It is assumed that the value of Bitcoin will rise since fewer bitcoin will be released over time as a result of the halving. A Coke cost a dime in the 1960s because fiat currencies tend to decline in value over time due to inflation. One way Bitcoin maintains scarcity is through its halving mechanism, and scarcity is one of the reasons why so many people are interested in Bitcoin.
How does it work?
As a valuable, scarce asset, Bitcoin is similar to gold - as it would likely resist inflation like the precious metal. Bitcoin, however, is digital and has a known scarcity. It can be sent worldwide almost as easily as an email can be sent. The United States Geological Survey estimates that all the gold ever mined could fill just over three Olympic-sized swimming pools, but because of the unknown, there is no way to figure out if there is still any gold underground. Throughout the year, new discoveries are made of gold, which results in a highly unpredictable schedule for the date of supply. As of late 2020, less than 2.5 million bitcoins remain to be mined, and there will never be more than 21 million of them in total.
It is a process similar to mining gold, but Bitcoin involves a global network of computers sending out information to check Bitcoin transactions which is conducted electronically.
A bitcoin reward is given to miners. A new bitcoin is distributed approximately every ten minutes in early 2020. Every 10 minutes, the reward was halved in May, resulting in a reduction in the reward to 6.25 bitcoins.
Bitcoin's mining reward, known as the "block reward", will keep halving approximately every four years. In twenty-four hundred years, all 21 million bitcoins will have been mined. As of now, Bitcoin miners won't earn new Bitcoin directly. They'll make money from transaction fees on the network.
More Bitcoin is impossible. Fiat currencies, on the other hand, are regulated by the government and central banks, which can make them print more money at their discretion, potentially leading to inflation.