What is Bitcoin Halving?
You probably saw the title and the first thing that came to mind was "Bitcoin halving? Yeah that's simple, cutting bitcoin into half", But still you kept on reading, why? Curiosity! " Why would bitcoin be halved? What does this even mean?". Well, today I'm going to be your tour guide, taking you on a trip to the past, to where it all began, so grab some popcorn and let's get started.
How Bitcoin Halving came about.
On the 3rd of January, 2009, Satoshi Nakamoto created the first ever digital currency called Bitcoin. On creation, there was a limited amount of 21 million bitcoins created; The first mining took place on that same day with over 1 million bitcoins mined into circulation. At the time, bitcoin had little value, and in order to grow into prominence and quantity, the Proof of Work Consensus Mechanism was adopted. This system involved miners solving a hash puzzle—complex math problems generated by the blockchain— and creating new blocks whenever a hash was solved. The estimated time of new block creation was 10 mins, after which a block reward of 50btc was given to the miner who solved the hash. This was the perfect incentive to have more miners and increase the circulation of bitcoins.
But unlike fiat currencies—like USD and Euro—bitcoin has a limited supply. With a system that gives 50btc for every block creation, a drop in value would be inevitable because much supply of a particular asset reduces demand and makes the asset worthless. This brought about the need for bitcoin halving. This method was configured into the blockchain's source code to reduce the number of bitcoin miners earned by half, after every successful mining of 210,000 blocks which is estimated to be a Four year period..
Occurrences of Bitcoin Halving.
The first halving.
This took place in November 2012, after the 210,000th block had been mined, the block reward was reduced from 50 BTC to 25 BTC. At the time, the value of Bitcoin to USD was $11. After the halving, bitcoin's value saw a rise to its all-time high of $1,217 within the time before the second halving. This halving was seen to propel the price of bitcoin using scarcity and little supply to create chaos for higher demand.
The second halving
On the 9th of July 2016, the second halving took place after the 420,000th block had been mined. Miners' block reward was reduced from 25 BTC to 12.5 BTC. At the time of the halving, the current value of bitcoin was $647 but on the 17th of December 2017, the price of bitcoin peaked at $19,800, its all-time highest at the time— Imagine owning 10 bitcoins at that time, that would have given you a whopping sum of $198,000. This period saw investors looking into this new currency that was slowly catching the attention of the masses and the world. But due to its volatility, it didn't maintain this spot for long as it dipped to $3276 on the 18th of December 2018.
The third halving.
The most recent halving took place on the 11th of May, 2020 when the miners' reward was slashed from 12.5 BTC to 6.25btc. At this time bitcoin had started getting the attention it deserved from the media, investors, and even organisations, so a pump in the price was inevitable. The coin took a triumphant entry into its all-time high on the 10th of November 2021 at $68,789. This showed the effect low supply had on demand during the halvings.
The next halving is estimated to occur in the year 2024 when miners' block reward would be reduced from 6.25btc to 3.125btc. Statistically, by the year 2140, the whole volume of 21 million bitcoins would be mined into circulation, at this point, there would be no block reward for miners. Presently, only 3 million bitcoins are left to be mined.
But why would miners keep working if there are no block rewards?
It is speculated that bitcoin would have gained a greater standing in the market and would be a much more precious asset likened to gold after all blocks have been mined. It is also well known that miners get their incentives from block rewards but rarely mentioned that they also generate income from transaction fees on the blockchain. Once mining is over, miners would solely generate their income from transaction fees. These transaction fees on the bitcoin network are fees generated from day-to-day activities by traders using the blockchain to make transactions. And as bitcoin increases in value, so do the transaction fees. From the coindesk article on bitcoin transaction fees it was calculated that "The average bitcoin transaction fee is $23"; With over 200,000+ transactions in a day, do the math!
What happens if 90% of miners leave for a more lucrative blockchain?
The lesser the miners the more chances of a current miner earning consistently from signing and validating transactions solely. But this could have a bad turn because the security of the blockchain would be in jeopardy and can be hacked as fewer people are left to validate and protect it.
The Future of Bitcoin after the Halving?
This is a question that cannot be answered with all surety, but two possible outcomes could play out.
Positive Outcome.
If everything goes according to plan and speculation, bitcoin would have reached a higher level of prominence where holding one bitcoin feels as though you held a dragon egg. By this time, companies, stores, people, and the world at large would have started using this as a normalized form of exchange.
Negative Outcome.
We could have all just moved on from it to other altcoins with better-paying value. For some time now, investors have been seeking out other means of digital currency that would not consume as much electricity and computing power as bitcoin does, and an alternative is surfacing—The Ethereum Coin. If altcoins take the place of bitcoin there would be a drop in value and a drop out of the market, making investors who invested a lot in it make huge losses from this occurrence.
Conclusion
Like I said, it is very difficult to tell how the future of bitcoin would go, but in all, do your research before you ape in and have a strong mind to stick to your decision and fate no matter the turn of events. Thank you!