What is Bitcoin halving?

Date: 13 January 2020

Even with increased public awareness and media attention around bitcoin, an event is pending that is attracting minimal headlines - the next Bitcoin Halving (also termed "Halvening").

Bitcoin was created with the intention of it maintaining it's value through time. As such, a set of ground rules were coded within the Blockchain to render the cryptocurrency resistant to inflation. The process to achieve this is the 'Bitcoin Halving'.

As an overview, the amount of Bitcoin that gets created every 10 minutes gets cut in half every four years, which provides for the name - Halving. The next Halving will be Bitcoin’s third and will take place around May 2020. This is when the current block reward of 12.5 Bitcoin every 10 minutes will be cut in half to 6.25 Bitcoin. The supply of Bitcoin is therefore controlled.

Unlike fiat currencies, which can be printed by central banks at their discretion, the supply of bitcoin is limited algorithmically.

Bitcoin’s (BTC) supply is finite. Once 21 million coins are generated, the network will stop producing more.

That is one of the main reasons Bitcoin is often referred to as “digital gold” — just like with the yellow metal, there is only a limited amount in the world, and someday, all of it will have been extracted.

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As at 13 January 2020, there are just over 18 million Bitcoin in circulation, which is roughly 85% of the total cap — but it doesn’t mean that the cryptocurrency is about to reach its limit any time soon.

The reason is the protocol, which has been coded into the blockchain from the very start: Every 210,000 blocks, it performs the so-called Bitcoin “halving” or “halvening,” and producing new coins becomes more difficult — just like in gold mining where finding new deposits becomes more challenging over time.

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The algorithm rewards miners with new bitcoins, which are generated and added to the circulating supply every 10 minutes. This distribution of new bitcoin is known as the “block reward.” 

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A block reward is the amount of cryptocurrency that miners receive when they successfully validate/mine a new block by solving highly complex mathematical problems with their mining hardware. It is a reward for their hard work.

At the outset, the block reward was 50 Bitcoin. This means that every 10 minutes, somebody, somewhere, was getting 50 bitcoins delivered to their wallet. 

Currently, the block reward is only 12.5 Bitcoin What happened? The block reward was cut in half — twice.

This event is programmed into bitcoin, and occurs every four years (210,000 blocks). Once that number is crossed, the block reward is cut in half. 

This process is predetermined and will continue until the last bitcoin is mined sometime in the year 2140.