Article: Bitcoin Halving

Bitcoin Halving

In order to understand “the halving” one must first have a basic understanding of the cryptocurrency.

Bitcoin is an asset similar to gold that only exists digitally (i.e. on computers running software around the globe). These computers run a piece of software called the blockchain. The blockchain is simply code that keeps track of every transaction around the globe like a gigantic checking account book recording where every Bitcoin is sent and received.

What makes Bitcoin special is that there are a fixed number of digital coins that can ever be created. Because the quantity is fixed, this drives the value of each Bitcoin higher since there will be a scarcity of coins once all coins are in circulation. The creation of these coins is called “mining” and computers run code to mine these coins (think of how we must mine for gold in the earth’s crust). As part of maintaining the blockchain globally, computers must validate that every transaction is correct, and they receive a reward (in Bitcoin) for doing so.

When Bitcoin was first created the “reward” for validating a transaction on the blockchain was very large, but as we approach the max supply of coins that will ever be created, the reward decreases.

The Bitcoin halving cuts in half the reward that crypto miners get for creating new Bitcoins, and this happens roughly every 4 years. Think of it like the Olympics but for people really into digital currency. This halving obviously slows down the rate of new Bitcoins being created on the blockchain which helps maintain its scarcity (and hence maintain its value).

The price of Bitcoin tends to rise not right away, but typically within 6 to 12 months of each halving event. The last halving events were:

  • April 14, 2021 – The 3rd Halving since Bitcoin was created
  • December 17, 2017 – The 2nd Halving since Bitcoin was created
  • November 30, 2013 – The 1st Halving since Bitcoin was created

So, there have not been a lot of halving events when you consider how long other (non-digital) currencies and/or assets like gold have been around.

The majority of financial analysts predict that the adoption of Bitcoin as a “store of value” and its scarcity model similar to how there is a fixed supply of gold in the world, will eventually give each Bitcoin on the blockchain a value of over $100,000 USD.

The good thing is that average consumers do not have to buy a whole Bitcoin in order to participate in this new digital investment. One can buy or sell 0.00000001 BTC, which is known as a Satoshi – one hundred millionth of a Bitcoin. Depending on which cryptocurrency exchange one uses, not all may allow buying such small quantities. But suffice to say, even if you have only $100 USD you can buy Bitcoin currently.