Bitcoin Halving 101

Bitcoin is often likened to "digital gold" and is considered by many to be a store of value. There are two key features of the cryptocurrency and network that relate to scarcity: a limited supply of 21 million BTC and the Bitcoin halving. (Read more in our Bitcoin 101 article)

Roughly every four years, the reward for successfully validating a block on the Bitcoin blockchain halves, but why does this happen and what impact does it have on Bitcoin?

What is the Bitcoin Halving?

The Bitcoin halving is an event that sees the block reward received by Bitcoin miners reduced by 50%. This lowers the supply of new bitcoins entering the market, decreasing the rate at which Bitcoin's circulating supply increases.

The halving process was programmed into Bitcoin's core code by pseudonymous creator Satoshi Nakamoto and takes place roughly every four years.

Because of the halving, it's widely believed that all 21 million BTC will not enter circulation until 2140.

How Does the Bitcoin Halving Work?

Block rewards (in the form of new bitcoin) are automatically awarded to the Bitcoin participants that successfully validate new blocks, which is also referred to as mining. This is the process by which new Bitcoin enters circulation. (Read more in our Bitcoin Mining 101 article)

This reward also incentivizes miners to continue keeping the network secure.

Thanks to the way that Bitcoin's Proof of Work consensus works, blocks of transactions are added approximately every ten minutes, on average. According to Bitcoin's code, the reward for successful miners is reduced by half after every additional 210,000 blocks created, which happens approximately every four years.

Currently, validators are rewarded with 3.125 BTC when they validate a new block. To put it into perspective, back in 2009, successful miners were awarded 50 BTC for every block.

Why is the Bitcoin Halving Important?

There are a number of reasons that the Bitcoin halving is important:

• It can help to counteract inflation by maintaining scarcity through slowing down Bitcoin’s issuance rate.
• It can help to drive mining innovation as rewards are reduced.
• If demand remains the same but supply is tightened due to the reduced pace Bitcoins are being created, the value of Bitcoin should increase.
• It attracts mainstream attention, which could introduce new investors and adopters.

How Does the Bitcoin Halving Impact Miners?

Bitcoin halving directly impacts miners given the amount of rewards they're able to earn from successfully validating a block are cut in half.

However, miners can still earn money from Bitcoin transaction fees. When mining rewards become "too small" or the total supply of Bitcoin enters circulation, these fees will become a miner's primary compensation for mining Bitcoin.

When is the Next Bitcoin Halving?

The Bitcoin algorithm dictates that halving events happen based on the creation of 210,000 blocks. This is because the Bitcoin network automatically adjusts the difficulty of its cryptographic puzzles depending on the amount of hashrate being dedicated to the network. So, given a consistent block creation time of approximately ten minutes, the next halving should take place around April 2028.

When this takes place, the block rewards will drop from 3.125 BTC per block to 1.5625 BTC per block.