Halving means reducing by half, and Bitcoin mining is exactly Half of the reward for miners.
Halving is of utmost importance to the Bitcoin protocol. BTC’s only monetary policy instrumentand that is what gives Bitcoin its deflationary nature.
In fact, the premium given to miners is the only way to create BTC.
This premium is encoded in Bitcoin code, as is the halving. Halving is therefore a process inherent in the Bitcoin protocol and immutable.
In addition to being immutable, it is also predictable, and the sum of all these things gives Bitcoin its deflationary nature.
The Beginning of Bitcoin Mining: Full Rewards to Miners and No Halving
At first, Bitcoin protocol was launched on October 31, 2008, BTC did not exist and there was no way to create one.
First provided protocol 50 BTC will be given as a reward for each block minedThus, when the first block of Bitcoin was mined on January 3, 2009, the first 50 BTC were created.
The second block was not mined until January 9th, rewarding the miners who mined it with an additional 50 BTC. At that point, in total he only existed at 100 BTC. It is worth noting that these first blocks were mined by Satoshi Nakamoto himself, the creator of Bitcoin.
Since then, the speed at which new blocks can be mined has increased, approaching the theoretical average of 10 minutes. So about 6 blocks per hour or 144 blocks per day were being mined.50 BTC was created per block, so about 7,200BTC was created and distributed daily as prizes to miners.
At that time, there were already miners other than Satoshi, and the market value of the BTC thus created was practically zero.
by the end of 2009 Over 1.6 million BTC In practice, the average time to mine a block (block time) was well below 10 minutes.
A total of nearly 5 million had been created by the end of 2010, and nearly 8 million by the end of 2011.At that time, 1 BTC was worth about $4, so Bitcoin was worth about $32 million.
The first halving took place on November 28, 2012.In other words, the Bitcoin protocol automatically Miner reward halved to 25 BTC per block.
This also halved the rate at which new BTC was created. This is because 3,600 instead of about 7,200 BTC were created each day while maintaining a pace of about 1 new block every 10 minutes.
The rules that operate within the Bitcoin protocol are halved Mandatory to occur for every 210,000 blocks mined. In fact, it was mined block number 210,000 that triggered the first halving on November 28, 2012.
The following year, BTC’s price surged to an all-time high of over $1,100, perhaps as new BTC creation halved.
Since the halving effectively halves Bitcoin money supply inflation, it is logical to expect it to have a positive effect on the cryptocurrency. BTC price This is because the selling pressure is reduced.
Relationship between mining activity and Bitcoin halving
Certainly, there is an underlying problem that can only be solved by selling the mined BTC on the market.
mining is a competition in which a prize is awarded to the individual miner who is the first to successfully mine a block. All other miners who have tried but arrive later get nothing.
This competition pure computing power, in Bitcoin called hashrate. In other words, the higher the miner’s computing power (hashrate), the more likely it is to earn a reward. Too few and you won’t be able to mine blocks and earn rewards.
This forces the miners to use as much computing power as possible, but then the machine that provides it consumes a lot of power.
As you can imagine, such a process incurs high costs, usually requiring payment in fiat currency. Since the only income from the mining process is his BTC, the mined BTC must be cashed in fiat currency to cover this cost.
Miners are not forced to sell all the BTC they have mined, but they may be forced to sell most of it, especially if the market price is low.
As of November 27, 2012, approximately 7,200 BTC were still being mined per day, with a market value of approximately $12 for each BTC. So we can imagine that the miner was trying to raise up to around $86,000 daily by selling his mined BTC.
Starting the next day, these numbers suddenly halved, creating 3,600 BTC per day, with a market value of $43,000. This has reduced BTC selling pressure in the market. By December, the value of BTC rose to $13 and in January to $14.
Subsequent Halvings: How Bitcoin Mining Will Change
Bitcoin’s second halving occurred on July 9, 2016 at block number 420,000 mined.
At that time, the market value of 1 BTC was around $670, which dropped in August but rose to $700 in November.
Yet the following year saw a massive speculative bubble, with Bitcoin hitting around $20,000 in December 2017.
It is worth noting that the percentage of this second bubble was lower than the previous bubble in 2013.
The third halving occurred on 630,000 blocks mined on May 11, 2020.
At that time, the market value of BTC was around $10,000 and remained at this figure until October of that year.
November 2020 triggered Bitcoin’s last major bull market, a year later all-time high $69,000.
Again, the speculative bubble is percentage smaller than the previous bubble.
Bitcoin monetary policy
Bitcoinmonetary policy is just that.
This means that all BTC will always be created solely through rewards given to miners, with rewards blocked in half for every 210,000 mined. That’s all.
We already know that the next halving will occur in spring 2024, as this monetary policy is not only immutable but also predictable.
The point is that the halving force will simply stop the creation of new BTC sooner or later. Note that miners no longer collect rewards at that point, but still collect fees paid by those who make transactions. This also necessitates a significant reduction in energy consumption.
However, it is not uncommon for the private key of the wallet where the BTC is stored to be lost forever, and without the private key the BTC stored in the wallet becomes unusable. It will be “lost” forever. When no new Bitcoins are created around 2140, the number of BTC in circulation will inevitably begin to decline.
by that time Bitcoin will become a deflationary currency.