Bitcoin halving refers to the halving of rewards for mining new blocks on the Bitcoin network periodically. When a bitcoin miner confirms a bitcoin transaction, their reward for doing so is halved by 50%, reducing the volume of bitcoin units created.
Bitcoin’s blockchain records transactions in 1MB blocks called “blocks”. In order to add the next block, miners solve a complex mathematical problem using specialized hardware, generating a 64-character random output known as a “hash,” completing the method, and locking the block. The miners receive Bitcoin in exchange for completing these blocks.
How Does Bitcoin Halving Work?
Bitcoin software contains a mechanism for halving Bitcoins. Due to its automatic nature, halving does not require the involvement of any third party or central authority. Blocks are stacked together when a transaction occurs on the Bitcoin network and miners receive rewards for validating them. Each time 210,000 blocks are mined, the Bitcoin protocol automatically halves the reward.
There have been three Bitcoin halves so far. The first was in 2012 after 210,000 blocks were mined, splitting block rewards from 50 to 25 BTC. A second batch came in 2016 when the 420,000th block was mined, reducing the reward to 12.5 BTC. Lastly, in May 2020, there was a halving that decreased mining rewards to 6.25 BTC. Afterwards, the reward system will switch to transaction fees only in 2140.
It’s decentralized, meaning there is no central authority to process transactions and ensure users are honest. Validating transactions is done by a process called bitcoin mining.
Proof of work (PoW) consensus lets nodes in the network (called miners) solve complex mathematical problems to get bitcoins.
The Bitcoin blockchain is made up of blocks that cannot be changed once they’ve been validated and verified by miners. For spending time and energy, miners get block rewards if 51% (or more) of nodes honor the block. This is how new bitcoins are released. Block rewards and transaction fees are currently 6.25 BTC for bitcoin miners.
Over time, Bitcoin’s network has expanded and mining difficulty has increased, so powerful hardware like GPUs and ASICs are now used to mine. Some miners pool their power to earn rewards faster.
How Does Bitcoin’s Price Change When It’s Halved?
Historically, bitcoin always spiked up after a halving event, but not right away. A Bitcoin wallet lets you keep your cryptocurrency growing.
Based on the past three price halves, a significant price rise starts after six to twelve months. The price of bitcoin also tends to rise before halves events because investors expect an upsurge.
It’s not sure if a price rise will occur during the next halving since the circumstances are different.