Bitcoin Halving explained in 500 words
Bitcoin halving refers to the preplanned reduction of block rewards to the so-called Bitcoin miners. These rewards are cut in half at regular intervals every 4 years. This reduction has already taken place 3 times, in 2012, 2016, and 2020. The next Bitcoin halving is expected to take place in 2024.
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What are Bitcoin miners, and what role do they play in the Bitcoin network?
The so-called Bitcoin miners are participants in the Bitcoin network whose task is to verify a set of transactions (known as blocks) so they can be added into the blockchain digital ledger. Bitcoin miners make use of computers with specialized hardware in order to solve difficult mathematical problems based on a cryptographic algorithm. After successfully verifying a set of transactions and adding these into the network, Bitcoin miners receive a reward by means of Bitcoin. Based on the preplanned protocol of the halving, the reward that Bitcoin miners get is cut in half every 4 years.
Why is Bitcoin halving necessary?
The objective behind Bitcoin’s halving is to limit the price inflation of Bitcoin. Unlike other cryptocurrencies, the supply of Bitcoin is finite. This means that only a limited amount is generated and put into circulation in the Bitcoin network.
Let’s now discuss below how the halving works by looking at the key aspects of the halving protocol.
Key aspects to understanding how the Bitcoin halving protocol works
1. Maximum Bitcoin supply
The maximum Bitcoin supply is 21 million Bitcoins. That means that only 21 million Bitcoins will be minted in total.
2. The Bitcoin reward protocol
The Bitcoin reward (or supply of new Bitcoins into the network) is divided by 2 every 210,000 blocks. The first set of Bitcoin rewards was established in 2009 and has regularly been halved every 210,000 blocks, or approximately every 4 years. As explained earlier, the objective of this protocol is to ensure that the price of Bitcoin doesn’t inflate in short periods of time.
3. Current Bitcoin circulation (2020)
The current Bitcoin circulation is 18.4 million Bitcoin (87% of the total available bitcoins that can ever exist).
4. Future Bitcoin circulation
Following the Bitcoin mining protocol, the last Bitcoin is expected to be minted in 2140.
The next Bitcoin halving in 2024
The next Bitcoin halving is expected to take place in 2024. The third halving has recently taken place in May 2020 and this means that Bitcoin miners now receive a reward of 6.25 BTC. When Bitcoin was launched in 2009, Bitcoin miners received 50 BTC reward per block. The first-ever halving took place in 2012, resulting in the Bitcoin miners being rewarded 25 BTC. After this, the second halving took place in 2016 and the reward was cut in half to 12.5 Bitcoins. In May 2020 the third and most recent Bitcoin halving ensured that the Bitcoin reward was cut in half to 3.25 Bitcoin. As mentioned earlier, the next halving is expected to take place in 2024. This means that the reward for Bitcoin miners will once again be cut in half to 3.125 BTC.
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