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What Is The Halving And How Could It Affect Bitcoin?

TEMPLE CITY, CA-MARCH 6, 2014: Journalists surround Satoshi Nakamoto, the mythical Bitcoin creator, ... [+] as he walks from his home to a car in Tempe City Thursday, March 6, 2014. (Photo by Allen J. Schaben/Los Angeles Times via Getty Images)

Los Angeles Times via Getty Images

Bitcoin BTC network reached 800,000 blocks last week, according to mempool.space. The public ledger of transactions is produced with a chain of these blocks and has been online since 2009. All the operations done using bitcoin are cryptographically registered in it. This number also indicates that a crucial automatic protocol process is closer: The Bitcoin halving.

The halving is a vital element of the Bitcoin design. In the Bitcoin network, a new block is produced every ten minutes. These new blocks are generated by a process known as mining, in which bitcoin miners employ specialized hardware with an important electric consumption to find a random number.

These blocks are added to the public ledger —also known as a blockchain— and miners get a reward paid in bitcoin for their investment in equipment and energy. Initially, this reward was 50 bitcoins, but now, we are on the edge of seeing this number go as low as 3.125 bitcoin per block. What happened?

For each 210,00 blocks, the bitcoin mining reward is automatically cut in half. For instance, since the Genesis Block and till block 210,000, the mining reward was 50 bitcoins. At block heigh 210,001, it started to be 25 bitcoins. Bitcoin already had three halvings, and these cycles lasted around four years each.

The Halving And The Bitcoin Hard Cap Of 21 Million

VIDEO: The Halving Is Near What It Is And How It Could Impact Bitcoin
Crypto Beat

This process also sets the monetary policy of the Bitcoin system. As its anonymous creator, Satoshi Nakamoto, explained through the Cypherpunks mailing list with the announcement of the first Bitcoin release, "total circulation will be 21,000,000 coins. It'll be distributed to network nodes when they make blocks, with the amount cut in half every four years."

The halving is a crucial element of the monetary side of bitcoin since it regulates how fast the total of 21 million coins goes into circulation. This process, plus the difficult mining adjustment, are two bright ways to solve the distribution of coins in a system that aims to be decentralized.

Difficulty adjustment is another automatic process of the Bitcoin protocol. It grants that every 2,016 blocks, bitcoin mining becomes more complicated or easier based on how many miners are operating in the system. If there's more mining power, the difficulty goes up, and so on. These two processes combined led to a stable and predictable bitcoin schedule in terms of coins emission.

What Happen After The Halvings?

There's no direct causation between the halving and the bitcoin price. It makes bitcoin rare in terms of its mined supply, but in the end, the price relies on supply and demand dynamics. A shock in the supply side, even a 50% cut, is not enough.

Besides this, bitcoin halvings are typically considered bullish events. They prove that the system continues to work even after Nakamoto's disappearance and can keep its monetary promises by automating some processes.

The next halving will happen at block 840,000 between April and May 2024.


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