What is Bitcoin halving?

Even if Bitcoin is a digital currency, it cannot be issued endlessly, and verifiable scarcity is at the core of its value proposition.

The Bitcoin protocol is based on two concepts related to scarcity:

First, the supply of Bitcoin is limited. The Bitcoin agreement stipulates that the total number of bitcoins is capped at 21 million, and it is impossible for more bitcoins to exist. This is in contrast to fiat tender, which can be printed at the discretion of the government or the central bank, which can lead to inflation.

The second concept is called \"halving\". About every four years, Bitcoin mining rewards (also known as \"block rewards\") are reduced in half. This means that the rewards given to cybersecurity contributors will be reduced by 50%, which directly affects the speed at which new bitcoins enter circulation.

In May 2020, the number of new bitcoins added to the network through virtual \"mining\"(once every 10 minutes) was halved from 12.5 to 6.25. In April 2024, this number will fall again to around 3.125, and this process will continue until all 21 million coins have been mined (which is expected to occur around 2140).

By then, miners will have to rely on transaction fees to verify blocks.

Why is Bitcoin halving important?

By issuing fewer bitcoins over time, halving makes it more likely that the value of bitcoins will rise (assuming demand levels remain the same). In sharp contrast, fiat tender usually depreciates over time through inflation, which is why a bottle of Coca-Cola sold for only 10 cents in the 1960s.

In short, halving is one of the ways the Bitcoin protocol remains scarce, and scarcity is a major reason why Bitcoin is popular among countless people.

But scarcity is not the only reason why halving Bitcoin is important. There are other factors that make halving a high-profile event.

For example, halving bitcoin typically attracts more media coverage of cryptocurrencies and bitcoin. As the incident makes headlines, it will naturally attract interest from potential new investors who may not have previously considered investing in Bitcoin or exposure to cryptocurrencies. This surge in attention could lead to increased demand for Bitcoin as new and existing investors look to take full advantage of potential price changes caused by the halving.

How does Bitcoin halve work?

To better understand how halving works, we first need to understand what Bitcoin mining is.

Bitcoin uses the Proof-of-Work (PoW) system to verify transaction information, so called because it takes time and effort to solve the cryptographic hash, and the system serves as proof that the work has been completed. In this system, individuals use computers or specialized miners to join the Bitcoin network and act as both transaction processors and verifiers.

Once a block is filled with transactions, it is closed and sent to the mining queue, and miners compete to be the first to solve the block\'s encryption problem. When miners confirm the legitimacy of transactions in a block, they open a new block and receive work rewards.

This process results in a chain of blocks containing information, known as a blockchain.

Each halving event reduces the reward for these network contributors by half, slowing down the rate at which new bitcoins enter circulation. To put it in perspective, as of March 2024, more than 19 million bitcoins have been mined, meaning there are about 2 million bitcoins left to be virtually \"mined.\"