Bitcoin Halving: How It Works and Why It Matters
Within the Bitcoin community, there is a tremendous amount of slang words and technical terms that are hard to get to grips with, especially in the beginning. But no matter what you’re struggling with, there will always be someone else who will happily help you understand so you, too, can keep up and learn everything you need to know.
In the article below, we’re going to address one of these terms; Bitcoin halving. The halving cycle is a frequently talked about topic, and it’s important to know what it means, how it works, and why it matters. If you’re involved with or thinking about investing in Bitcoin, this will help you understand the halving cycle in full.
What Is Bitcoin Halving?
On the Bitcoin blockchain, transactions are recorded via a ‘block’. This is a file that contains 1 MB of BTC.
Anyone mining for Bitcoin must compete with all other miners to solve the complicated mathematical problem and validate the next block. This is done using powerful and specialist hardware. The hardware constantly runs a random 64 character output, this is also called a ‘hash’. If the 64 character output is the one that solves the puzzle, then the miner “wins”. The block is validated and they receive the Bitcoin amount within the block.
Bitcoin halving is the process of the Bitcoin amount within the block changing, periodically. Back in 2009, when Bitcoin was first created, each block contained 50 BTC. That is a staggering amount by today’s standards. This high amount was set to attract as much attention as possible and get investors and miners motivated to get involved in the world’s first digital currency.
However, because the number of Bitcoin that exists is not infinite, and to ensure the demand and interest in Bitcoin remained high even as time progressed, the creator Satoshi Nakamoto, included halving in the process. This halving means that the Bitcoin amount within blocks halves for every 210,000 blocks mined or around every 4 years until all 21 million Bitcoin has been mined.
As of 2022, there have been three halving events taking place in 2012, 2016, and 2020. In 2012, the halving took the block reward from 50 BTC to 25 BTC. The second halving reduced this further to 12.5 BTC for every block that was mined. And finally, as of May 2020, the block amount is now worth 6.25 BTC.
Since the event takes place around every four years, the next halving is expected in 2024 and will take the block reward down to 3.125. This halving cycle will continue time and again until 2140 when there will be no more new Bitcoin available to be mined.
Why Does Bitcoin Halving Happen?
Every ten minutes a new block is found and mined - this is just how the algorithm is set up. However, the more miners that are on the network, and therefore, the more hashing power that is being used, the ten minutes decrease.
But, it’s important that the ten minutes stay at ten minutes. So, every two weeks or so, the mining difficulty is reset so the ten minute target is maintained. And so far, that target has been nearly on goal as the last decade has shown that a new block is mined around every 9 and a half minutes consistently… close enough.
However, because the number of Bitcoin that can be mined is set at 21 million (no more, no less), halving has to take place to ensure that demand, interest, and value in BTC can be upheld long-term.
In fact, immediately after each halving, the price of Bitcoin increases greatly which leads to more attention and interest among current and new miners. Even though the amount that can be mined halves, the incentive, and motivation for miners doubles.
Mining takes a lot of patience, computing power, and sometimes money. But the algorithm has been set up in just a way to make it all worth it for those invested. Bitcoin halving isn’t as bad as you may think it is and should only continue to encourage higher prices and profits.
Why Does Halving Matter?
Halving matters for all miners because when the halving happens, the value increases. And anyone who already owns Bitcoin or is hoping to in the future is eagerly awaiting this crypto to go up and up regularly. So, you should look at halving as a chance for you to make more money.
For example, here is a breakdown of its value after the previous halvings happened:
- First halving, late November 2012 - value $12
- One year after halving - value ~$1000
- Second halving, July early July 2016 - value $670
- One year after the second halving - value ~ $2,550
- Third halving, May 2020 - value $8,787
- Months after the third halving - value of Bitcoin tripled and more
Of course, there are other factors why the value increases around this time and the months that follow including the world’s media, a piqued interest from non-miners, and more businesses accepting BTC as currency.
When Will the Next Bitcoin Halving Happen?
Each day, approximately 900 new Bitcoin are mined and released into circulation. Since 2009, nearly 19 million BTC have been mined or 90%, leaving only 2 million before the magic 21 million is reached. The next halving is set to happen sometime in early 2024 where the block reward will be reduced to 3.125 BTC.
Based on these numbers and future halvings, experts calculate that the last block will be mined in 2140. So, with not much time remaining and the reward value slowly decreasing, now is a better time than any to start your Bitcoin mining journey.
Why Joining a Mining Pool Is the Answer for Miners
A mining pool is a group of people who collectively agree to pool their resources and share the profits.
For example, have you ever split the cost of a bunch of lottery tickets with work colleagues or friends with the agreement that if one of the tickets wins you all share the prize? While you might have to share the prize, there is more chance of you winning in the first place. After all, it’s far better to share $1 million, than it is to keep 100% of nothing.
Well, a mining pool works in the same way. The group of miners will collectively use their resources to create more mining power. The more mining power you have, the higher the chance is that you will generate a block on the blockchain and therefore, receive the reward.
One of the best parts of joining a mining pool is that you don’t have to match other investors. The reward is divided relative to how much power each member contributed. This means you don’t have to be stinking rich or own a ton of resources in the first place. You simply take out proportional to what you put in.
You should also bear in mind that the mining pool will have an owner who will, rightfully, charge each member a fee for joining. The amount will vary from owner to owner, but it’s unlikely to ever be an unaffordable amount since the owner also benefits from having as many members as possible.
Change Your Future with Mining Syndicate
If you would like any more information about starting or expanding your Bitcoin horizon; reach out to us at Mining Syndicate. Our mission is simple: Strengthen the Bitcoin network by enabling small-scale miners to affordably purchase and reliably host miners.
As a small miner, Chris became frustrated by the lack of hosting options available for miners with under 100 units. As luck would have it, he found a 2.5MW mining facility for sale right down the road, and thus, Mining Syndicate was born. Facilities #2 and #3 are already in the works.
Why is Mining Syndicate so successful? Because we have a team of people who are just like you, eager to be a part of the future of mining. If you would like more information about how you can be a part of Mining Syndicate, how our facility works, or the products we sell, you can reach out to us here.
You can also check out our list of miners we currently have in our catalog, as well as our list of best sellers.
We look forward to hearing from you - together we are stronger!