Bitcoin Halving: What is It and Why Should You Care? (2018 Updated)

Last Updated 09/22/2018

What is the Bitcoin Halving? What does it mean? When does it happen? What happens to the value of bitcoin when it does happen?

Post Summary

Every 4 years on average (210K blocks) the reward granted to miners for adding a block to the blockchain is cut in half. The Bitcoin halving was designed by Satoshi Nakamoto to keep Bitcoin’s inflation in check.

1. What is the Bitcoin halving?

To understand what The Bitcoin Halving is, you must first understand the basics of Bitcoin mining. In short, new Bitcoins come into the world as a reward for miners whenever they mine a Bitcoin block.

When Satoshi Nakamoto set up the rules for the Bitcoin protocol he stated two important things, among others:

First, that the supply of Bitcoin is finite and limited to 21 Million. Second, that the number of bitcoins generated per block i.e. the reward is set to decrease by 50% every 210,000 blocks. Since 6 blocks are found on average within an hour and halving happens once every 210,000 blocks, this means that every 4 years (give or take) there will be a halving event.

This basically means that the mining reward will be reduced by 50% from what it used to be. For example, if today each miner receives 12.5 Bitcoins for solving a block, after the next halving event they will receive only 6.25 BTC and so forth.

Following this math, the final number of Bitcoins will be roughly 21 million (20999999.9769 to be exact) by the year 2140.

Of course the fact that 21 million Bitcoins have been generated doesn’t mean that there are actually 21 million Bitcoins that can be spent. You need to take into account that there are many lost Bitcoins which will never be recovered (it’s assumed that 1/3 of the Bitcoins mined until today were lost).

Why should you even have a halving event?

So why the change? Why not keep the reward the same? Isn’t that unfair to the miners? The answer to that question lies in the law of supply and demand. If the coins are created too quickly, or there’s no end to the number of bitcoins that can be created; eventually there will be so many bitcoins in circulation that they would have very little value.

Vitalik Buterin, the lead developer of the Ethereum project, wrote an op-ed piece for Bitcoin Magazine and explains the need for slowing the distribution of bitcoins through halving this way:

“The main reason why this is done is to keep inflation under control. One of the major faults of traditional, “fiat”, currencies controlled by central banks is that the banks can print as much of the currency as they want, and if they print too much, the laws of supply and demand ensure that the value of the currency starts dropping quickly.

Bitcoin, on the other hand, is intended to simulate a commodity, like gold. There is only a limited amount of gold in the world, and with every gram of gold that is mined, the gold that still remains becomes harder and harder to extract. As a result of this limited supply, gold has maintained its value as an international medium of exchange and store of value for over six thousand years, and the hope is that Bitcoin will do the same.” ~ Vitalik Buterin, Bitcoin Magazine.

2. When will the next halving occur?

Since we know the average block generation time (10 minutes) we can estimate that the next halving event should occur somewhere around 2020. There are websites such as BitcoinClock which show you a countdown until the next event.

Having said that, some community members have noticed that in fact, since the creation of Bitcoin, a new block has been created every 9 minutes and 20 seconds on average and not every 10 minutes as presumed. This is 7% faster than the presumed time of 10 minutes.

3. How will the Bitcoin halving affect the bitcoin economy?

Of course the main question people want to know is “will this affect Bitcoin’s price?” and the answer is “nobody knows”. In 2016, a week after the halving event, not much happened to the exchange rate of bitcoin against the US dollar. While bitcoin was trading at around 650 US dollars at the time of the event, a week later the rate was about 675, so not much of a change.

Still, there are arguments in favour of two scenarios – either the price will rise, or nothing will change.

Some claim that the halving event is well known to the community and therefore will not surprise anyone or cause a major change in Bitcoin’s price. Others claim that due to shortage in “Bitcoin supply” the price is bound to climb as demand will increase. However no one seems to think that the halving may lower the price of Bitcoin in any way.

For example, on November 28th 2012 the first Bitcoin halving occurred when block 210,000 was solved. Back at the time Bitcoin’s price was \$13.42 and the halving didn’t seem to affect the price that much. Indeed, shortly after Bitcoin’s price spiked to \$230, but many attribute that to the Cyprus bailout.

What do you think? Will the next halving event affect Bitcoin’s price?

4. Conclusion

Bitcoin was designed to be valuable. To support this the specific rules were set.There will only ever be a specific number of Bitcoins in existence  (21 million) and inflation is kept in check by slowing its distribution through the process of halving. I hope this gives you a better idea of what bitcoin halving is, and why it’s an important feature of what gives bitcoin its value.

You may still have some questions. If so, just leave them in the comment section below.

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Hafiz van persi

“This basically means that the reward the miners will be reduced to 50% of what it used to be. So if today each miner receives 25 Bitcoins for solving a block, after the halving event he will receive only 12.5BTC. Following this math, the final number of Bitcoins will be roughly 21 million(20999999.9769 to be exact) in the year 2140.”

For this statement i don’t understand, as halving should occurs unstoppable because numbers have ‘exponential function’ thats means it infinite.. Not end in year 2140+-.

Anyone have idea?

Guest
Satoshi

I also think the price of Bitcoins would rise. If Bitcoins is a commodity like gold is, hence it being mined, let’s cast our minds back to the year 1324, when Mansa Musa I, of Mali made his pilgrimage to Mecca. This man gave out over 120k lbs of gold to the poor and traded some other tons of gold for souvenirs. His generosity is said to have “inadvertently” devalued the worth of gold in the cities he passed did charity in, for the next decade! Bottom line: The abundance of a commodity reduces it’s value, and vice versa. There… Read more »

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Eddie

Now pardon my lack of education as I’m not as smart as some of you out there so if I seem out of touch you have to forgive my ignorance. I’ve been to and read bitcoin sites, blogs, news feeds, newsletters for the past few months and every single guy and his mom is basically saying that bitcoin is a sure bet. I mean it’s such a sure bet that these guys make it seem like it’s easy free money over the long term. I mean are there that many warren buffet types who have all come to the same… Read more »

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NetworksManager

Dustin has probably hit the nail on the head.

Member
paul mc daid

now in the EU bitcoin is legally money and does not get charged vat. (value added tax)
The cost to mine bitcoins,will come down to price to mine and make profit.
So where are the most miners?and cost of production?
The latest hardware with most THs per watt.
Do not over look some older machines that can be under clocked for power consumption.

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Jason

People are so out of touch….. Bitcoin will either be abolished or will increase to astronomical levels…. And with the US declairing it as a commodity, it is now labeled as something… So most likely, the entire wold will begin to hord and accumulate, and sidechains will replace the outdated and broken as well as broke finicial systems in place at this time. As the US collopse with their entire government and banking system people will utilize this as the future of trade… This is the next level and why banks are trying to develop what is already in place… Read more »

Member
hirantha

Thats great. Just fill your wallets and wait till counter get zero. ;-)

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pouya

I think bitcoin price is highly depend on dollar’s interest rate. If federal reserve decide to increase this rate, Bitcoin index price will decrease more.

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Dustin

I’d have to disagree with Jackus. Miners are selling bitcoins all day every day to pay for their mining operations (theoretically mining is a commodity and therefore MC= MV and therefore should ‘theoretically’ be selling 25 btc every 10 mins). But leaving the theory behind, it goes to reason that inflation puts downward pressure on price as many of these bitcoins are instantly sold to support their mining operations (buying hardware and paying for electricity). Cut the inflation in half and you’ll have less downward pressure on price and should see the price rise. The effect I am referring to… Read more »

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flashhh12

It will have to rise, do to the high cost of electricity and Hardware..
If it remains the same, there will be a lot of people/businesses that will be force to stop
my 2 cents