The available supply of conventional currencies rises and falls under the watchful eye of national central banks, but the total supply of bitcoin is fixed and unchanging.
There will only be 21 million bitcoins. currently just over 19 million have been mined, leaving just under 2 million to be created. the bitcoin protocol automatically reduces the number of new coins issued with each new block in a process called halving.
Reading: What is the bitcoin halving
“One of the most important features of bitcoin is its limited supply and issuance mechanism,” says Bruce Fenton, CEO of fintech firm Chainstone Labs. “Bitcoin provides certainty in an uncertain world. the code, not the people, decides how it is issued.”
Bitcoin’s transparent and automatic control of its supply is one reason supporters of the world’s most popular cryptocurrency view it as a store of value more akin to gold than fiat currency.
what is the bitcoin halving?
bitcoin halving is when the reward for mining bitcoin is cut in half. the halving takes place every four years.
The halving policy was written into the bitcoin mining algorithm to counteract inflation by maintaining scarcity. In theory, the reduction in the rate of issuance of bitcoin means that the price will increase if the demand remains the same.
Bitcoin currently has an inflation rate of less than 2%, which will decrease with further halvings, says David Weisberger, CEO of trading platform Coinroutes. That looks pretty good compared to the 9.1% annualized inflation rate in June’s consumer price index (CPI).
“Bitcoin’s production scarcity is what defines its finitude, and when the reward decreases, the supply tightens,” says chris kline, director of operations at bitcoin ira. “Increased demand at a time when supply is constrained has a positive impact on price, which can make bitcoin attractive to investors.”
how does the bitcoin halving work?
A decentralized network of validators verifies all bitcoin transactions in a process called mining. They are paid 6.25 btc when they are the first to use complex math to add a group of transactions to the bitcoin blockchain as part of its proof-of-work mechanism.
at the current price of bitcoin, 6.25 btc is worth about $148,000, a decent incentive for miners to keep adding bitcoin transaction blocks seamlessly.
Those transaction blocks are added approximately every 10 minutes, and the bitcoin code dictates that the reward for miners is halved after 210,000 blocks are created. that happens roughly every four years in periods that are often accompanied by increased bitcoin price volatility.
when was the first bitcoin halving?
Bitcoin’s first halving occurred in November 2012. The next halving was in July 2016 and the most recent halving was in May 2020.
The reward, or subsidy, for mining started at 50 BTC per block when Bitcoin was launched in 2009. The amount is halved each time a new halving takes place. for example, after the first halving, the reward for mining bitcoins was reduced to 25 btc per block.
In total, there will only be 64 halvings, the last one in 2140. At that time, there will be 21 million BTC in circulation and no more coins will be created. thereafter, miners will only be paid with transaction fees.
richard baker, CEO of miner and blockchain services provider taal distributed information technologies, notes that miners may move transaction processing power away from btc once the next halving occurs as they seek more fees transaction elsewhere to make up for lost bitcoin revenue. .
fewer miners would mean a less secure network, experts say.
On the other hand, while halving reduces the reward for miners, it also reduces the supply of new coins without reducing demand, says Patricia Trumpeter, CEO of Cryptocurrency Minersphere 3D Corp.
“If economic theory holds true, which it has historically been for bitcoin, bitcoin prices should rise sharply in response to the supply shock,” he says. “although there is still debate as to whether the historical price movement around each halving was a direct product of the halving.”
higher prices would be an incentive for miners to continue processing bitcoin transactions.
when will the next bitcoin halve?
Bitcoin’s algorithm dictates that the halving occurs based on a certain block creation. Nobody knows exactly when the next halving will occur, but experts point to May 2024 as the anticipated date. that would be almost exactly four years from the last.
The somewhat predictable nature of bitcoin’s halvings was designed not to be a huge shock to the network, experts say.
But that doesn’t mean there won’t be a trading frenzy around the next bitcoin halving.
“Historically, there is a lot of volatility in the bitcoin price before and after a halving event,” says rob chang, CEO of gryphon digital mining, a privately owned bitcoin miner. “However, the bitcoin price usually ends up significantly higher a few months later.
While there are many other factors that influence bitcoin’s price, it appears that halving events are generally bullish for the cryptocurrency after initial volatility subsides.
baker says investors should beware of upcoming bitcoin halving. while scarcity may drive price appreciation, reduced mining activity could cause the price to stabilize.
“However, the key point for investors to consider is not the specific dates of the halving events, but to focus on overall network growth,” Weisberger says. “As the network continues to grow, the likelihood of bitcoin reaching its potential as a global store of value will increase.”