Bitcoin Halving Explained — What Is It & Why You Should Care

May 05, 2020
16:05
2 min reading

Choise.com team

If you’ve been following the crypto news lately, you’ve probably heard about the Bitcoin Halving on May 2020. In this brief guide, you’ll learn what the Bitcoin Halving is, why this event is important for the cryptocurrency community, and how it could affect the price of Bitcoin.

Long story short, Bitcoin Halving is an event that cuts by half the reward miners receive for adding new blocks to the Bitcoin network. But before we jump into details, let’s make sure you clearly understand how Bitcoin works. Unlike fiat currencies, typically managed by central banks, Bitcoin relies on a decentralized network of computers (aka ‘miners’). Each of these computers is responsible for recording and validating transactions on the Bitcoin blockchain.

Simply put, Bitcoin miners add new blocks of information to the public ledger by solving complex mathematical problems. As you would expect, their efforts need to be properly compensated. In order to cover the expenses of mining, such as hardware investment or electricity costs, the network rewards miners with a fixed amount of Bitcoin (BTC) every time they mine a new block.

Another distinctive aspect of Bitcoin is its supply. Traditional currencies like the U.S. dollar or the Euro have no limits on supply. Central authorities can print as many bills as they need. Bitcoin, on the contrary, has a maximum supply of 21,000,000 BTC determined at the time of its creation. This brings us to the next question:

How to prevent inflation for Bitcoin? To ensure that BTC does not suffer from high inflation during its distribution, rewards are progressively reduced through Bitcoin Halving events.

What is Bitcoin Halving?

As briefly outlined above, Bitcoin Halving refers to an event that reduces by 50% the blockchain mining reward. This event takes place once every 210 000 blocks are mined (approximately four years)

At the moment, the Bitcoin reward stands at 12.5 BTC. The next Bitcoin Halving event is expected on May 12, 2020 at around 03:25 UTC and it will take the reward down to 6.25 BTC.

Event	Block Reward	Block Number	New Supply Between Halvings	Dates
Launch of Bitcoin	50 BTC	Genesis Block (0)	10,500,000 BTC	Jan 3, 2009
1^st Halving	25 BTC	210,000	5,250,000 BTC	Nov 28, 2012
2^nd Halving	12.5 BTC	420,000	2,625,000 BTC	Jul 9, 2016
3^rd Halving	6.25 BTC	630,000	1,312,500 BTC	May 12, 2020
4^th Halving	3.125 BTC	740,000	656,250 BTC	2024
5^th Halving	1.5625 BTC	850,000	328,125 BTC	2028

The first block reward halving began at a 50 BTC reward. In 2012, it was halved to 25 BTC followed by another halving in 2016. At the moment, the Bitcoin reward stands at 12.5 BTC. The next Bitcoin Halving event is expected on May 12, 2020 at around 03:25 UTC and it will take the reward down to 6.25 BTC.

Bitcoin halvening events will continue to take place once every 210 000 blocks until Bitcoin’s supply reaches 21 million units, leaving the mining reward close to 0 BTC.

The Bitcoin Halving 2020 is the third event in the history of Bitcoin. For investors and traders, Bitcoin halving is a significant occasion as it reduces the number of new BTC being created by the system. As a result, the supply of new coins is restricted, so prices could increase if the demand remains high. But we’ll get to that a bit later.

Although the value of Bitcoin has increased quickly in the past halvings, the conditions surrounding each halving are overwhelming and the interest for the digital currency can change uncontrollably.

Talking about BTC’s cost representation, it has 8 decimal places. It is only after the 33rd halving that the cost of the block reward will hit exactly 0 BTC. It adds up to 132 years in total to hit the 0 BTC mark. That said, you can expect the last Bitcoin to be mined by the year 2140.

How does Bitcoin Halving affect price?

In theory, Bitcoin Halvings should lead to an increase in the BTC price. If the demand for Bitcoin continues to grow and fewer units are mined, the result is a higher valuation.

To date, the record seems to show that theory is actually right. The past two halving events have unleashed massive gains for Bitcoin, which might explain why the cryptocurrency community is so anxiously expecting the next event.

https://twitter.com/TheTIEIO/status/1231271182466527233

Bitcoin Halving 2012 Price Reaction

By the time of the Bitcoin Halving in 2012, this cryptocurrency was trading at $11. Only a year after the event, its value jumped to a peak of $1100. A breathtaking growth of 10,218%.

Bitcoin Halving 2016 Price Reaction

In 2016, Bitcoin traded sideways between $500 and $800. The second halving event didn’t immediately affect the price. Yet, Bitcoin took the market by surprise in December 2017 as it marked an all-time record of $20,000.

While these numbers might sound very promising, there is no sufficient evidence to link Bitcoin’s price increase to the halving events. But regardless of whether there is a correction or not, analyzing previous Bitcoin Halving events is vital to better understand future price behaviour.

Bitcoin Halving 2020 Price Prediction

While it would be unwise to provide a precise estimation for the Bitcoin Halving, past events have already proven themselves as triggers for bullish scenarios. Yet, as an investor you should understand that there are two possible outcomes:

1. Bitcoin (BTC) Price Grows After Halving

The idea that the price of Bitcoin will increase following the halving event is typically associated with the historic price dynamic. The previous halving events have unleashed massive growth for Satoshi’s currency, giving us reason to believe the pattern will repeat itself.

Another key aspect supporting the hawkish view is the supply/demand balance. As Bitcoin remains the top cryptocurrency and the number of crypto users continues to increase, slowing down the supply of BTC could positively impact the price.

The stock-to-flow price model also suggests that the supply reduction increases Bitcoin’s scarcity with an inflation that’s well-below any other currency out there.

2. Bitcoin (BTC) Price Drops After Halving

A bearish outcome is mainly supported by those implying Bitcoin has no intrinsic value, and therefore a halving of the block reward wouldn’t affect the price.

Bearish investors also indicate that halvings could deteriorate the Bitcoin blockchain, and therefore its price. As mining becomes less profitable, plenty of miners will be forced to cease their operations and without larger miners taking their share the network could pay the price.

Excited about halvings? Bitcoin isn’t the only one…

Most of the buzz is focused on the upcoming Bitcoin Halving, but this isn’t the only digital currency expected to halve its blockchain reward in 2020.

Earlier this year, privacy coin Beam underwent its first halving event. By January 4, BEAM was trading at $0.52 per unit. One month later, this cryptocurrency reached a $1 peak. Although it later corrected downwards, it has managed to remain above the $0.60 price level.

In April, Bitcoin Cash and Bitcoin SV will halve their rewards to 6.25 BCH and 6.25 BSV, respectively. Just like Bitcoin’s event, these halvings will take place at block 630000. As the dates aren’t fixed, you can stay updated with this useful countdown.

Last but not least, ZCash will undergo its first reward cut by the end of 2020 at block 1,046,400. The reward will move from 12.5 ZEC to 6.25 ZEC.

How to trade the Bitcoin Halving 2020 with Crypterium

For each scenario, you have options that can be easily managed with our KPMG-awarded, fully insured cryptocurrency wallet:

Bullish: save yourself from the ‘too late’ thoughts and buy as much Bitcoin as possible before the halving event takes place on May 12, 2020.
Conservative: keep your current BTC stake safe and relax. If the price will increase after the halving, you can lock your profits with stablecoins or cash out.
Bearish: take the safe road and protect your investment by moving your Bitcoin to a stable cryptocurrency like USDC or UDST.