What is Halving (Bitcoin)? Definition, how it works, who it affects

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What is the halving?

Halving is a process in which the reward given to miners or validators in a cryptocurrency network is halved after a certain number of blocks have been processed. It is a crucial feature of several cryptocurrencies, including Bitcoin (BTC).

What does it mean?

The Bitcoin blockchain uses proof-of-work (PoW) consensus to validate transactions, which rewards miners with a share of new BTC created in the process and a percentage of transaction fees as an incentive to participate. Miners can sell their BTC through exchanges for other cryptocurrencies or fiat currencies.

New blocks are added to the chain every 10 minutes. After every 210,000 blocks are created on the Bitcoin blockchain, which is approximately every four years, the reward is halved. That’s what halving means.

The frequency of such events is determined by the number of blocks on the chain rather than specific dates, so estimated halving dates may change slightly depending on the pace of block creation.

Blockchains that were created from a hard fork, or spin-off, of the Bitcoin blockchain such as Bitcoin Cash (BCH), Bitcoin SV (BSV), and Litecoin (LTC) or that use its code source are also experiencing halving discounts.

How does the halving work?

The Bitcoin cryptocurrency was designed with a cap on its circulating supply of 21 million coins. This is intended to create rarity and sustain the value of coins over time. Halving the value of block rewards is intended to limit the supply of new coins so that mining does not become an inflationary influence.

The slow release of new BTC over many years through the halving is intended to control supply inflation and create market stability and fair distribution.

In 2009 when the blockchain went live, the block reward was 50 BTC. In November 2012, at a block height of 210,000, the reward was halved to 25 BTC. In July 2016, at a block height of 420,000, the reward was further reduced to 12.5 BTC. In May 2020, at a block height of 630,000, the reward was again reduced to 6.25 BTC. In May 2021, the total number of BTC created had already reached 18.7 million, or almost 90% of the total supply. In April 2024, at a block height of 840,000, the next Bitcoin halving is expected to take place.

The reward is expected to reach zero around May 2140. Miners will still receive a share of the transaction fee as an incentive to process the blocks.

Non-Bitcoin Halvings

BitcoinSV and Bitcoin Cash are also expected to experience their next halvings in 2024. But other blockchains operate on different halving schedules from Bitcoin.

The Litecoin blockchain was launched in 2011 from a copy of the Bitcoin source code but with a block processing time of 2.5 minutes. As this is faster than the 10-minute processing time of Bitcoins, the block reward is halved every 840,000 blocks to meet a four-year schedule.

The first Litecoin halving took place in 2015, when the reward was reduced from 50 LTC to 25 LTC, and the second in 2019 reduced the reward to 12.5 LTC. The next Litecoin halving is scheduled for August 2023 to bring the reward down to 6.25 LTC. The Litecoin block reward is expected to fall to 0 by 2142, as it is two years behind Bitcoin.

The halving on the Dash blockchain occurs every 210,240 blocks, resulting in a reduction in the mining reward every year.

Selected Block Reward Halving Schedule Cryptocurrency Expected Halving Date Blocks Between Halvings Bitcoin (BTC) March 27, 2024 250,000 Litecoin (LTC) August 1, 2023 840,000 BitcoinSV (BSV) April 18, 2024 250,000 Bitcoin Cash (BCH) April 21, 2024 250,000 Dash June 20, 2023 210,240 Zcash September 23, 2023 250,000 Verge October 2023 500,000 How does the halving affect crypto mining?

Because halvings are timed by block height, miners know when to expect the reward halving and can plan their mining activity and equipment purchases accordingly. In the past, the value of cryptocurrencies such as BTC rose in terms of fiat currency after the halvings, which allowed miners to continue operating profitably.

Over time, miners’ earnings will depend on transaction fees, which are determined by the use of blockchain for transactions and applications.

How do halvings affect crypto prices?

As cryptocurrency coin prices are influenced by supply and demand, the reduction in new coin creation that accompanies each halving tends to support higher prices. For example, the price of BTC has climbed after each of its halvings, and in the period surrounding its last halving, it rose from $5,000 in March 2020 to over $60,000 a year later.

LTC price has also risen, outpacing the broader crypto market during regulatory uncertainty as traders anticipate its next halving in August 2023.

However, an analysis from digital asset investment firm Greyscale Associates states: While it may be tempting to view Bitcoin halvings as a catalyst for price appreciation, the price of Bitcoin has historically tracked an upward trajectory surrounding each halving event, but attributing these price increases solely to the halving oversimplifies the complex dynamics at play…

It serves as a predictable, timed event within the Bitcoin ecosystem, around which a multitude of unpredictable factors swirl. Understanding these drivers can equip us with a more comprehensive perspective, supporting informed decision-making in the Bitcoin world.

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