Bitcoin Halving in 2024: Everything you need to know
Bitcoin, the first cryptocurrency ever created, has revolutionized the financial system. Also, it has captivated the attention of plenty of technologists, investors and enthusiasts across the globe, who all become interested in how to buy Bitcoin. The groundbreaking crypto has many interesting features, but one that stands out is a periodic event named "Bitcoin Halving."
Since its launch, Bitcoin has fascinated the world with its scarcity-driven design and decentralized nature. At the heart of its system lies Bitcoin halving, which occurs approximately every four years. This event reduces the rate at which new coins are created by half, decreasing the impact of inflation and ensuring a limited supply. This mechanism allows the production of digital currencies to decrease over time, so Bitcoin will gradually cap its total supply of 21 million coins.
However, this event has advantages and drawbacks, affecting several aspects of the crypto ecosystem. Let's delve into all the information you need to know about Bitcoin halving, but first, let's start with some details about Bitcoin, the first cryptocurrency ever created.
The birth of Bitcoin
Bitcoin was the first decentralized currency introduced to the entire world in 2008 when an unknown person or group of people under the pseudonym of Satoshi Nakamoto released the concept of a decentralized cryptocurrency. Its origin can be traced back to a document published by Satoshi Nakamoto, where he outlined the idea of a cryptocurrency that would operate independently and not rely on governments or banks. This white paper can be considered the genesis of Bitcoin, as it led to a new era in the world of technology and finance.
When the concept of a decentralized cryptocurrency appeared, it was revolutionary. Bitcoin was different from traditional currencies as it operated on a peer-to-peer platform, meaning the transaction would happen directly between users. There was no need for intermediaries, live governments or other authorities. Decentralization is one of the most powerful characteristics of Bitcoin and a key feature that distinguishes it from fiat money.
Furthermore, Bitcoin brought many other advantages, as it improved the security of transactions, so it became more difficult than ever to counterfeit crypto dealings. Bitcoin also has an open source, and anyone with the necessary hardware and internet connection can participate in its network. This great transparency and accessibility were important reasons that contributed to the worldwide popularity of Bitcoin, driving its adoption in numerous countries around the globe.
Bitcoin has a limited supply of 21 million coins, and after the first digital currency reaches this limit, other coins will no longer be minted. Bitcoin can be seen as the internet of money, a decentralized and borderless currency that allows direct transactions between parties. Although Bitcoin is characterized by high volatility and presents numerous challenges, it has increased in popularity significantly since its inception.
The mysterious creator of Bitcoin: Satoshi Nakamoto
Nakamoto introduced the concept of a decentralized cryptocurrency in 2008 with the help of a whitepaper, but its identity is still a mystery. However, his anonymity has not really been a drawback, as it added mystique and allure to Bitcoin. Furthermore, the pseudonymous nature of the creator can reflect the decentralized nature of Bitcoin itself. Exactly like the way Bitcoin operates freely, without a central authority, its creator remains elusive and absent. In this way, Bitcoin has developed organically, and it has not been under the spotlight of its creator.
Although Nakamoto has been quite absent in the evolution of Bitcoin, the cryptocurrency has grown tremendously in the last few years with the collective effort of the Bitcoin community. Because Bitcoin is open-source, it allows anyone to take part in its development, ensuring that the digital coin will continue to adapt and evolve.
The early growth and adoption of Bitcoin
Bitcoin's blockchain was launched in 2009, and first, it was considered a niche that only tech enthusiasts seemed to be interested in. In the early days, Bitcoin was not well understood by the general public. Still, over time, Bitcoin benefited from its growing popularity, and in this way, its value also began to increase. Even if Bitcoin was worth less than a cent at first, it grew into a cryptocurrency worth thousands of dollars. Thus, Bitcoin transformed into a profitable asset, and the price attracted more investors. Bitcoin's open source is also an important feature that fueled its growth because anyone with an internet connection could participate in the network's development.
Key features of Bitcoin
Bitcoin is a digital currency that functions with the help of blockchain technology, which represents an immutable and transparent ledger that records all Bitcoin transactions. The transaction blocks are linked between them, and thus, they create a chain of blocks-a.k.a blockchain.
Blockchain is a system that provides a transparent and secure way to record transactions that can't be modified or altered. Immutability is key to maintaining integrity and trust within the Bitcoin platform. The blockchain is also open-sourced and public, so anyone can see and participate in the transactions recorded.
Blockchain is a great technology that can expand way further than the financial sector. Its immutability, transparency, and security appeal to numerous applications and sectors, including healthcare, education, tourism, and many more.
What is Bitcoin Halving?
Bitcoin halving is an important event that occurs every four years or when 210,000 new blocks are added to the blockchain network. Transactions on the blockchain are realized through a process called mining, where miners verify that they are authentic. In this Bitcoin halving event, the block reward offered to miners will be reduced by 50%.
Bitcoin halving occurs every four years, so the next event is expected to happen in April or May 2024. Each halving reduces the block reward by half, gradually decreasing the rate at which new coins are created. The block reward currently is 6.25 bitcoins, set on the last halving event in 2020.
Bitcoin mining explained
Bitcoin works in a decentralized environment, and no central authority, like a government, is involved in its operations. However, because there is no authority to ensure user honesty and authentic transactions, there was a need to address this issue, and this is how crypto mining appeared. Bitcoin uses a proof-of-work (PoW) consensus mechanism, where miners solve challenging mathematical problems to validate transactions and receive rewards in the form of Bitcoin.
With the help of mining, each transaction is verified and confirmed and then introduced into a new block, which becomes part of the blockchain and can no longer be removed or modified. Each miner who validates the transaction receives a block reward in exchange for their effort and time. With the help of mining, new Bitcoins are introduced into circulation.
When Bitcoin was first created, anyone could be part of the mining process by just using a personal computer. However, things have changed over time, and the mining difficulty has increased, so miners now need to use powerful hardware like ASICs and GPUs.
When does Bitcoin Halving happen?
Bitcoin halving happens every four years to maintain control inflation and a predictable supply schedule, this interval being the ideal timeline so that 210,000 new blocks will be generated. But why does it happen every four years? The usual time for developing a new block is around 10 minutes, and the generation of new 210,000 blocks takes about four years.
This interval ensures a gradual and predictable decrease in creating new bitcoins, contributing to countering inflation and a controlled supply.
Why does Bitcoin Halving take place?
The mechanism behind halving is connected with the blockchain technology and the Bitcoin network's consensus algorithm. Currently, the Bitcoin platform uses a proof-of-work (PoW) consensus mechanism to verify the transactions. Generating new blocks is made with a process known as mining, where miners need powerful computers to solve challenging mathematical puzzles to be able to secure and verify transactions made on the Bitcoin platform. Every time a miner solves a puzzle successfully, a new block is added to the blockchain and the miners are rewarded with newly minted bitcoins.
When Bitcoin was launched in 2009, the reward for miners was 50 bitcoins per block. Then, the Bitcoin protocol included a rule that would cut the reward in half at every 210,000 blocks. Bitcoin halving happens to achieve two purposes:
Controlled supply
With the help of Bitcoin halving, the block rewards are reduced. This ensures that the entire supply of this digital coin stays finite and limited. The maximum supply of Bitcoin is capped at 21 million, and the halving will continue to reduce the issuance rate until the Bitcoin limit is reached.
Scarcity and value
A controlled supply of the digital coin maintains scarcity, which can affect its value. A decreasing rate of new supply can increase the Bitcoin price, as it follows the principle of supply and demand.
Bitcoin Halving Dates
The first Bitcoin halving took place in 2012, three years after the inception of the first digital asset. The second was in 2016, and the last one in 2020, during the Covid-19 pandemic. Let's take a closer look at the halving events from the past:
2012
The first Bitcoin halving took place on November 28, 2012. The event reduced the block reward from 50 BTC to 25 BTC. Within a year of this event, the price of Bitcoin saw a fantastic improvement, increasing from $12 to approximately $1,031.95, a rise of over 8,500%. With this event, half of the entire number of Bitcoins has been released into circulation.
2016
The second halving, which was highly anticipated by the crypto community, happened on July 9. By this event, 420,000 new blocks have been mined, and the block reward has been reduced to 12.5 BTC. At that moment, Bitcoin was trading at $650.96, but after a short period, it reached an all-time high of $20,089, only 526 days after the halving.
2020
The last halving event occurred on May 11 during COVID-19, a period of plenty of uncertainties, which caused a crash in the Bitcoin price. The event halved the block reward from 12.5 to 6.25 BTC. Bitcoin was traded at around $8,787 at that time, but 18 months after the event, it peaked at approximately $69,000.
Will BTC price rise after the 2024 halving?
Because the Bitcoin blockchain is on the verge of a new halving event, there is a huge excitement around this future development. It's quite difficult to pinpoint exactly if the BTC price will rise after the 2024 event, but the future could be positive if we look at the last three events. However, the year 2024 could be different, as Bitcoin is still emerging from the devastation of 2022.
Still, many experts believe the BTC price will increase after the halving event. However, no one can point out precisely what will happen in the future, as an increase in the price depends on several factors, including macroeconomic conditions, market sentiment, and regulatory developments.
The impact of Bitcoin Halving
Supply and demand dynamics
The event expected to happen this year will directly impact the demand and supply dynamics of the crypto space. Halving will reduce the rate at which new digital coins are produced and decrease the available supply. The basic economic principles say that when supply decreases, the demand can increase or remain constant, which is why crypto enthusiasts are optimistic that the price of BTC will go up. If the demand grows, the scarcity effect can drive the price upward. The increased adoption and recognition of Bitcoin and its scarcity give the general public the idea that Bitcoin has limited availability, which can boost demand and positively impact the price.
Historical price movements
The last Bitcoin halvings have been associated with an increase in the price of the largest digital currency by market cap, where Bitcoin gained an upward momentum both after and before the event. For instance, in the 2012 halving, the price soared from $12 to $200 in less than a year. Similarly, the digital currency benefited from a stunning recovery after the 2016 price halving, reaching $19,700 in December 2017.
The positive outcome was also seen in the last halving event when Bitcoin's price started at $8,787 during the halving, but then it experienced a great result, and in November 2021, it reached its all-time high of $69,000.
Market perception and investor sentiment
Bitcoin halvings usually trigger heightened anticipation and market attention. The prospect of potential price surges and reduced supply can foster a positive sentiment among traders and investors. So, this optimistic outlook can increase the demand for Bitcoin as investors and traders seek new opportunities to benefit from more gains. As a result, the halving of bitcoin could also boost market sentiment and demand. However, there are situations when the market sentiment will not always be positive, as the participants could experience FUD (fear, uncertainty, and doubt), which could affect the price. Additionally, conflicting sentiments can lead to market volatility and short-term price fluctuations.
Long-term outlook and network security
The halving event ensures the platform's long-term stability and security. Because mining adapts to reduced block rewards, the blockchain can become more robust, as it will not rely that much on creating freshly minted currencies.
Impact on mining economics
As the block rewards will be reduced by half, this event will directly affect the miner's profitability, as it will make changes in their income from block rewards. Miners could be less willing to operate after the halving, as they could find this activity less profitable.
Is Bitcoin halving bad or good?
Halving is one of the core features that attract investors to Bitcoin. Fiat money can be a subject of inflation due to its ever-increasing supply. However, this can't happen to Bitcoin, as the first digital currency is capped at a maximum supply, and the events that occur every four years reduce its inflation rate.
From an economic point of view, the halving of Bitcoin is considered good, as it created disinflationary pressure on Bitcoin, and it can increase its value over time. On the other hand, the Bitcoin halving has also been criticized, as the supply limit and the halving event encourage individuals to hold their tokens for a longer period in the hope they will maximize their investment. This culture, known under the general name of HODLing, is why many people consider Bitcoin an investment rather than a transactional currency.
Wrapping up
Bitcoin is a digital currency and a manifestation of innovation, dedication, and the relentless pursuit of financial autonomy. Bitcoin halving is an important milestone in the crypto journey, highlighting its supply dynamics and unique economic model. With each halving event, the landscape of digital finance will change continuously. So, if you are interested in cryptocurrencies, it will be good to find out more about the economic implications of halving and its technical intricacies to better understand the potential of Bitcoin.
