The halving is inseparable from the Bitcoin project since it was thought of from the creation of this cryptocurrency by its founder Satoshi Nakamoto. This process of reduction will take place in stages until the mining of the last of the 21 million Bitcoins.
Each halving is an event that impacts the price of a cryptocurrency, as well as its miners, and investors in general.
What does “halving” mean?
This is a periodic and predefined event whose the goal is to halve the mining capacity of a blockchain. For bitcoin, the halving cycle was designed to cut every 210,000 blocks. Statistically, a block is generated every 10 minutes, which makes it possible to project a halving every 4 years.
If Bitcoin is the first ecosystem to use the halving, others have taken over this mechanism to adjust it to their operation. This is particularly the case for Litecoin or Dash.
It should be noted, however, that cryptocurrencies using halving do not necessarily follow 4-year cycles. For example, Helium and its HTN token, have planned a 2-year cycle.
How it works ?
This process is relatively simple to understand. BTC token issuance will halve each time. The same goes for rewards. Mechanically, this causes a scarcity of the token, i.e. a drop in supply. Demand will therefore become higher, which will theoretically support the price of cryptocurrency.
For the story, initially, from January 3, 2009, the reward offered was 50 BTC for a course that did not exceed 30 dollars. When the first halving took place on November 28, 2012, the rewards were halved to 25 BTC for a price that was hovering around $100. At the end of this first halving, more than 15 million BTC have already been created out of the planned 21 million.
A second halving took place on July 9, 2016, increasing the reward to 12.5 BTC. The third halving was set up on May 11, 2020 with a reward of 6.25 BTC for a cryptocurrency that was trading around $25,000.
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Looking ahead, we expect a fourth halving scheduled for 2024 with a reward set at 3.125 BTC. The ultimate halving that will mine the last 328,125 Bitcoins will be initiated in 2028 for a reward capped at 1.5625 BTC.
What is the point of Halving?
Concretely, if this process had not been put in place, the maximum bitcoin supply would have come too quickly. Indeed, all of the BTC would already be mined and in circulation. This situation would not be at all interesting for minors. Having nothing left to mine, they would only receive transaction fees as compensation. This offers unattractive profitability for the latter.
Finally, thanks to the halving, the Bitcoin ecosystem has mastered its supply of new tokens and maintained a relative attractiveness. Because even if the remuneration of mining is reduced over time, the price of the token has increased considerably since its appearance.
What is the impact of this mechanism ?
As part of bitcoin, we generally observe the establishment of a “bull run” following a halving. This is also one of the reasons why these events agitate the sphere of cryptocurrencies.
This is not an absolute truth since this process has already caused the price of their tokens to drop.
On the side of the miners, their remuneration is lower at each halving. Despite the rise in prices over the long term, this is enough to scare away some miners. What also impact the level of security of the network.
Conclusion: what to expect from the halving?
Even if the rewards decrease with each halving cycle, this process still has a bright future ahead of it. It will be necessary to wait until 2140, date of mining of the last Btc, so that the minors do not receive any more new tokens, but are satisfied with a remuneration via the transaction fees only.