Understand halving in just 3 minutes

Halving is inseparable from the Bitcoin project as it was thought of since the creation of this cryptocurrency by its founder Satoshi Nakamoto. This reduction process will take place in stages until the last of the 21 million Bitcoins is extracted.

Each halving is an event that affects the price of a cryptocurrency, its miners and investors in general.

What does “halve” 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 allows you to project a halving every 4 years.

If Bitcoin is the first ecosystem to use halving, others have detected this mechanism to adapt it to their functioning. This is especially true of 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 a 2-year cycle planned.

How does it work ?

This process is relatively simple to understand. The issuance of BTC tokens is halved every time. The same goes for rewards. Mechanically, this results in a shortage of the token, i.e. a drop in supply. Demand will then increase, which will theoretically support the price of the cryptocurrency.

For the story, initially, from January 3, 2009, the reward offered was 50 BTC for a course that did not exceed $ 30. When the first halving took place on November 28, 2012, the prizes were halved to 25 BTC for a price of around $ 100. At the end of this first halving, over 15 million BTC out of the expected 21 million has already been created. .

A second halving took place on July 9, 2016, bringing the reward to 12.5 BTC. The third halving was established on May 11, 2020 with a reward of 6.25 BTC for a cryptocurrency trading around $ 25,000.

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Looking ahead, we expect a fourth halving expected in 2024 with a reward set at 3,125 BTC. The latest halving that will mine the last 328,125 Bitcoins will be started in 2028 for a reward limited to 1.5625 BTC.

What is the purpose of Halving?

Specifically, if this process had not been implemented, the maximum supply of bitcoin would have come too quickly. In fact, all BTCs would already be mined and in circulation. This situation would not be of interest to minors at all. Having nothing from me, they would only receive transaction fees as compensation. This offers an unattractive profitability for the latter.

Finally, thanks to halving, the Bitcoin ecosystem dominated its supply of new tokens and maintained relative attractiveness. Because even though the remuneration of mining decreases over time, the price of the token has increased significantly since its appearance.

What is the impact of this mechanism ?

As part of bitcoin, generally we observe the establishment of a “race to the top” after a halving. This is also one of the reasons why these events shake the cryptocurrency sphere.

This is not an absolute truth as this process has already brought the price of their tokens down.

On the part of the miners, their remuneration is lower with each halving. Despite the long-term price increase, this is enough to scare off some miners. This also affects the security level of the network.

Conclusion: what to expect from halving?

Even though 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, the mining date of the last BTC, so that minors no longer receive new tokens, but are satisfied with compensation through transaction fees alone..

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