In this article we cover how Bitcoin halving works and also expand on its implications for people who own Bitcoin. However, to get an understanding of how Bitcoin halving works you need to first understand a few essential elements of the Bitcoin network.
You’ll have heard of the blockchain – it is the distributed database on which all transactions made on the Bitcoin network are recorded. The transaction records make up blocks, in turn the blocks make up a chain which is called the blockchain. Recording of transactions require a lot of mathematical computations that require computing power, and this power is “donated” by the miners who mine Bitcoin in return for a reward. The process of mining creates new Bitcoins – the reward for miners.
New Bitcoin blocks are solved roughly about every ten minutes, at which time a new Bitcoin is emitted. When Bitcoin was first rolled out the reward for a block was 50 coins, but at the end of 2012 the reward dropped to 25 coins, and in July 2016 this became 12.5 coins. The reward for mining a Bitcoin block therefore halves - and it halves for every 210,000 blocks which are mined. So at the current rate of mining the next “halving” will be in June 2020, when the reward for mining a Bitcoin block will become just 6.25 Bitcoin.
The Bitcoin network halves the reward for mining a block in an attempt to try and control the amount of Bitcoin that is in supply. Consider that there will only ever be 21 million Bitcoins in supply – the Bitcoin supply cap is 21 million coins. When these coins are released no more Bitcoin will be added to the Bitcoin pool.
So, after 64 halvings of Bitcoin, there will be no further Bitcoins added to the Bitcoin network. Or put another way, once the original reward of 50 bitcoins is divided 64 times over there will already be 21 million coins in the market and there simply won’t be any additional Bitcoin added to the market, period. The result is that the last Bitcoin that will be mined will be in 2140.
Miners are the primary group affected by the mining of Bitcoin because it affects how much they earn when mining. Miners can earn large sums from mining Bitcoin, but they have costs to contend with including the capital cost of mining equipment as well as the price of electricity. When Bitcoin halves it means a big impact on mining revenue. In fact, Bitcoin miners can lose as much as half of their mining revenue when Bitcoin halves.
With Bitcoin halving in June 2020, and as mining Bitcoin has become increasingly difficult, you might think that Bitcoin mining might come to an end – but that might not necessarily be the case. The reason for this is because Bitcoin miners make sure that the Bitcoin network remains alive, as they use their computing power to process Bitcoin transactions.
So, there are may factors which will contribute to keeping Bitcoin mining profitable and attractive, including the price of Bitcoin – and we think the future price of Bitcoin is possibly the most important aspect. However, when Bitcoin halves some miners might stop mining Bitcoin altogether