What does the Bitcoin Halving in 2020 mean and why should you be aware of it?
May 2020 is the expected date for the third Bitcoin Halving. What does this mean? Should we be happy? What is the Bitcoin Halving exactly, why is it happening and how will this affect the cryptocurrency economy? Learn all about it below, but first, let's just say: when the time comes, it will give you a reason to celebrate!
Not only are we celebrating the Bitcoin Halving, but October 31st is the tenth anniversary of the publication of the Bitcoin White Paper. Satoshi Nakamoto, the inventor of blockchain, wrote a paper on what Bitcoin (BTC) is, how to use it and why it works. We won’t go into it too much, you can learn more about it here. But it’s a must-read for crypto-enthusiasts or if you just want to know more about how our wonderful world of crypto all came to be.
What is the Bitcoin Halving?
When Bitcoin was invented, it came with a twist: the number of bitcoins produced would not be infinite. To be exact, the total number of mined and created bitcoins is 21 million, not one more nor one less, but we are still far from reaching that limit.
So how many bitcoins have been mined already? And how many are left? Well, the exact number is 18,018,675 BTC that have already been created and mined to date. Which means we have approximately 2,981,325 left. This number changes when new blocks are mined, but you can check out the stats for yourself here.
New bitcoins are “minted” thanks to miners, who have to solve a random hash function, called “proof of work”, in order to add blocks to the Bitcoin blockchain. The miners run software and solve complex problems in order to add to the blockchain. Far from being an easy task, it has been described as trying to find a needle in a haystack. As a reward, these miners are paid in Bitcoin and in return, they distribute them in the market for us. Totally fair!
However, the anonymous creator, Satoshi Nakamoto, programmed Bitcoin so that for every 210,000 blocks created (approximately every four years), the reward for miners will be halved. As a consequence, the number of new bitcoins produced and circulating will be fewer every time. And that simplified, is Bitcoin halving.
When is the next Bitcoin Halving happening?
If we consider that every 10 minutes a new block is created (five blocks per hour), the halving process takes place every four years (yes, don’t worry, we already calculated for you). That explains why, in 2012, the first halving took place with a new block reward of 25 BTC being offered to the miners, while the second one was in 2016, followed by a block reward of 12.5 BTC. Now we are waiting for when the miners see their reward halved again in May 2020 to 6.25 BTC.
To be exact, the third Bitcoin halving will happen the moment that 630,001 blocks have been created, but we can't predict the exact day and hour. We should also consider that the speed of solving mathematical problems has increased by 40 seconds since the last halving. You can get a closer idea of the countdown by using this Bitcoin Clock.
What is the reason behind the Bitcoin Halving?
The aim is not to reduce the “salary” of the people who are solving these difficult mathematical equations that secure the fast transaction of our bitcoins. To put it simply, the reason is to control inflation.
Unlike fiat currencies, which governments can theoretically mint without limits, Satoshi’s aim was to protect the value of Bitcoin. There is a limit to Bitcoin total supply in order to avoid devaluation. Bitcoin is also similar to scarce commodities in many ways, like gold, palladium or other precious metals for example.
How will the Bitcoin Halving affect the cryptocurrency market?
At the end of the day, the Bitcoin market is a matter of supply and demand. When we think about the last halving from 2016, the price did not see big changes. The prices were stable. But keep in mind, not until a year after we experienced the big hype surrounding Bitcoin’s record prices. Was this development because of the Bitcoin Halving in July 2016? Possibly, but other factors play a role too.
Each halving has its own circumstances and this one may perform differently, so we can’t tell. But if there’s one thing we do know, every big Bitcoin event or change will affect the whole cryptocurrency and blockchain market. If we talk about the prices after the halving in 2020, we should consider that the scarcity scenario may play out in both directions.
What happens when the miners’ rewards hit 0 bitcoins?
According to the time and speed of creating new Bitcoin blocks, by 2140 the total amount of 21 million bitcoins will have been mined. Right now, you might think that this date is far away, but again, remember that in the next decade, almost 100% of bitcoins will be created and circulating through this halving system. Not only that, but the rewards will decrease until the last percentage of Bitcoin is mined.
So what will happen when the miners have reached 21 million bitcoins and there are no coins left to mine? Don’t stress about this too much. Future miners will be rewarded with transaction fees. That means the cryptocurrency system will not collapse.
Although, there’s the argument that once miners have lost their block rewards the mining system will become unsustainable since mining will become unaffordable, which in turn will lead to a withdrawal of miners and then eventually a breakdown of the whole centralised Bitcoin institution. But there are also experts that believe mining will become so energy efficient and profitable over the next century that the transaction fees will be more than enough of a reward to keep everyone happy. This is all just speculation, you can read up on it here and make up your own mind about it!
Before you go...
If you’re reading this article to learn about investing in Bitcoin or you’re already an avid investor, you should check out our prices for buying. There’s a reason we’re Europe's leading trading platform. Our sign up process is fast and simple, you can do it in the time it takes to make a cup of coffee!