The Bitcoin halving is the periodic halving of the bitcoin issuance: how it works, what are the reasons, and the consequences.
The halving is a scheduled event within the Bitcoin protocol that halves the quantity of new bitcoin created. When a miner successfully adds a block to the blockchain, they are rewarded with bitcoin (block subsidy) in addition to transaction fees. Every 210,000 blocks, the halving reduces the miner’s block subsidy by half.
As halving events unfold, miners’ income will primarily come from transaction fees rather than the block subsidy.
The halving of the monetary issuance is a key phenomenon in reducing the inflation rate of the Bitcoin asset, diminishing the supply of new bitcoin available in the market, and contributing to making the currency increasingly scarce over time.
When does the halving occur?
The halving takes place every 210,000 blocks, which, considering the average time of 10 minutes to mine a block, translates to approximately every four years.
From 2009 to the present, the Bitcoin protocol has undergone three halvings of the monetary issuance:
- November 28, 2012: from 50 bitcoin every 10 minutes to 25;
- July 9, 2016: from 25 bitcoin every 10 minutes to 12.5;
- May 11, 2020: from 12.5 bitcoin every 10 minutes to 6.25.
The next halving is scheduled for April 2024 and will reduce the miner’s block subsidy to 3.125 BTC. The halving process continues until reaching a total supply of nearly 21 million bitcoin.
Thanks to the mathematical precision with which they are created, it is possible to know the future production of new bitcoin. For example, it can be estimated that by November 12, 2025, 95% of the total bitcoin supply will have been issued.
The bond between Bitcoin and the Austrian School of Economics
The concept of halving in Bitcoin stems from the desire to create a currency with controlled inflation, similar to gold. The idea is closely tied to the theories of the Austrian School of Economics, which assert that uncontrolled increases in the money supply can have distortive effects on the economy, such as the devaluation of money itself, leading to a loss of purchasing power.
In the Bitcoin protocol, the elements of scarcity and inflation play a fundamental role. With a maximum supply of just under 21 million units, Bitcoin stands in contrast to fiat currencies printed at the discretion of central banks.
The Austrian School of Economics and the Bitcoin protocol agree on the notion that money should be a scarce resource.
Halving in the source code
The halving mechanism is directly defined in the source code of Bitcoin Core: one only needs to look into the code for the mathematical function GetBlockSubsidy() to understand how it operates.
This function ensures the limit of just under 21 million units, monitors the number of generated blocks, and halves the block subsidy every 210,000 blocks.
The effect on the price of Bitcoin
Halving is one of the most anticipated events in the Bitcoin ecosystem, not only for its profound economic implications but also for its potential impact on the price.
Historically, halvings have had a significant influence on the price, although there is no guarantee that history will repeat itself.
In the months following each of the first three halvings, the price experienced a notable surge.
With the supply defined, if demand remains constant over time, the price should see a significant increase after each halving.
As with any commodity, when supply decreases and demand remains constant or increases, the price tends to rise.
For example, in 2013, from $145 in October, the price reached $1,150 within two months: +800%.
From $2,000 in July 2017, it surged to nearly $20,000 in December: +1000%.
From $10,600 in October 2020, the price soared to nearly $69,000 in November 2021: +550%.
Future dynamics
Despite the significant price increases recorded in the past, it is reasonable to expect that future percentage gains may not be as high. As the market capitalization of Bitcoin grows, it requires more new capital to drive price growth.
