Posted 2 years ago | by Ben Armstrong
What is the Bitcoin Halving?
The next Bitcoin halving in on the horizon. According to some estimates, the next Bitcoin halving will occur in May of 2020. While this isn't the first time that Bitcoin has undergone a halving, it is making some waves, perhaps because Bitcoin is more widely known than ever before.
Bitcoin halving refers to the time when the blockchain code that allows Bitcoin to operate halves the block reward that Bitcoin miners receive.
Unless you are a Bitcoin miner, this event is unlikely to affect you. In the past the Bitcoin price did appear to appreciate after a halving, but there is no way to know if it will happen this time around. Let's have a quick look at Bitcoin halving, and see what it means in a practical sense.
Bitcoin Halving-Just Another Part of the Network
When Bitcoin's blockchain was created, whoever developed it decided that every so often, the amount of compensation that Bitcoin miners would receive would be cut in half every four years-or so.
The current block reward of 12.5 Bitcoins will be cut down to 6.25 when the next halving happens in May, although all of the other costs to miners will presumably stay more-or-less constant. This means that the profits for miners will be cut down sharply, though this may not be a big blow to the larger players who have good margins.
From the standpoint of a Bitcoin user, the next halving should be a non-event. It will mark the creation of the 18 millionth Bitcoin, which is just 3 million Bitcoins away from the cap of 21 million. Some commentators think that the dwindling supply of new Bitcoin may push up the price, but this is pure speculation.
A Long Road to 21 Million Bitcoins
Just because the first 18 million Bitcoins have been created in a little over a decade, many are wondering if the entire supply will soon be mines. In fact, estimates put the creation of the last Bitcoin somewhere around 2140, which is around 120 years from right now.
Miners will be out the income they would've earned from the block rewards when the last Bitcoin is created, but they will still be able to earn a reward from transaction fees, which is the same way it works right now.
Transaction fees will also probably help to offset the loss of revenue from the upcoming halving, and ensure that miners have a steady source of income that won't change much.
The amount that miners will receive from the block rewards system has fallen substantially from the time that Bitcoin went live, which is promising for the future of the system. Ultimately, miners will have to make their return from transaction fees, although the current block reward certainly helps to pad their profits!
The Bitcoin Price?
As the last two years have shown, there is a lot more going on in the Bitcoin market than technical stuff like Bitcoin halving. The net supply of Bitcoin is actually stable, and will become more so as subsequent halvings occur over the next decade.
Traders and investors likely make too big a deal out of the supply side of the Bitcoin pricing equation, as the total supply has been rising since it went live, and the increasing sully doesn't seem to have done anything to dent a steady rise higher in price (on a rolling average basis).