The significance of bitcoin halving for the crypto industry

Bitcoin in 2009 was introduced to the world by Satoshi Nakamoto, who put the halving process into the algorithm. In the crypto industry, this is one of the significant and expected events that strongly further affects the work of miners and the price of crypto coins. Usually, the volatile market becomes even more volatile six months before this date. Investors try to guess how this or that event will affect the price to sell or buying crypto assets in time.

This event, or what is bitcoin halving, is a process where miners have halved the reward for each new block mined by them. This happens about once every four years or when 210,000 blocks are reached. The system is programmed in such a way that the halving process will take place until 21 million BTC is obtained. Satoshi Nakamoto stated that the main goal of this monetary policy is to limit the entry of new coins into the market and, consequently, increase the deficit of BTC.

What is called Bitcoin halving?

Bitcoin works based on the Proof-of-Work (PoW) algorithm, so for a new coin to hit the market, miners must be involved. A miner can be anyone who has a special, powerful, and expensive PC that can solve mathematical problems to create new blocks. The miners are paid for their work, initially, for a mined block, they had 50 BTC, but with the passage of time and several bitcoin halving, the reward was reduced to 3.125 BTC.

Such a significant event in the crypto industry does not have a clear date in the calendar, but it happens systematically after mining 210,000 blocks. According to Bitcoin’s technical documentation, the last block will be generated in 2140, and no more new coins will enter the market.

What is behind Bitcoin halving?

The halving process was written in a few lines of code after the first/generic block was started, specifying the conditions under which it occurs and under which it is no longer started.

The halving process is programmed to maintain a certain level of new coin issuance. Even the appearance of new powerful equipment will not affect the halving process. All the same, halving will not take place earlier or later, but only after mining 210000 blocks at the same time will not change the speed of appearance of blocks – one per ten minutes.

The amount of reward is set automatically by the algorithm. In 2012, the first halving took place, and the reward decreased to 25 BTC, then in 2016 to 12.5BTC, in 2020 to 6.25BTC, and in 2024 to 3.125 BTC. The next when is btc halving should happen in 2028. A miner cannot set the reward for a mined block above the designated value. Otherwise, the block will not be accepted by the network, and he will earn nothing.

Why does halving affect bitcoin’s price?

The scarcity that halving leads to is expected to affect the price of the digital coin. Historically, the demand for Bitcoin is constantly growing. In practice, the crypto community knows the approximate when this will happen and begins to react as early as a year in advance.

The price of Bitcoin has already gone through several halvings. For the first time in 2012, the crypto community was not familiar with the situation of supply constraints and reacted only after the halving by raising the price. The second time in 2016, the price dropped 10%, then resumed its previous level. Experts say the price increase of nearly 280% in 2017 was a delayed industry response to the halving. For the third time in 2020, Bitcoin’s price showed growth throughout the year and rose from $7300 to $69000 in 2021. In 2024, when was the last bitcoin halved, the Bitcoin price showed an all-time high of $73,780.

Although the price rise is an expected phenomenon, no one can guarantee it. Some factors can affect the rate of crypto coins, such as hacking of crypto exchanges, tightening of legislation, pandemics, market manipulation, and so on.

Is Bitcoin halving impact important for miners?

The mechanism embedded in Bitcoin halving Satoshi Nakamoto is aimed at avoiding the devaluation of the coin. A strictly regulated amount of Bitcoin does not allow arbitrary issuance and leads to the effect that such crypto coin becomes a certain value.

Every time after halving, miners’ rewards drop, they need to constantly upgrade their equipment to reduce power consumption and increase hash power. For miners to be motivated to keep working, there is another one of the earnings of miners – transaction fees, when a user pays for the speed of his transaction.

However, many say that over time, the fees will only increase as new ways of using the Bitcoin network (NFT) emerge, resulting in more transactions and the need to process them. It is the mining fees that are driving competition among miners and getting them involved in this market, but how the next halving will affect it is still hard to predict.

When was the start for Bitcoin and Bitcoin halving

The first Bitcoin blockchain was created on January 3, 2009, and Satoshi Nakamoto submitted the technical documentation a year before that. Since then, the financial world has changed dramatically, both the methods of sending money and the value of crypto coins. To date, Bitcoin has reached a capitalization of $1.3 trillion and has received recognition from Mastercard, Microsoft, PayPal, Starbucks, and Tesla.

The first payment using Bitcoin was in 2010 as a payment for pizza. In 2010, the crypto coin was worth $0.40, and already in 2011, it was worth $32. Today, the price is $59,204.
The scenario that underlies Bitcoin is the halving process it has gone through several times already:

• On November 28, 2012, the reward to miners was reduced from 50 to 25 BTC. The price of the crypto coin increased significantly after that, by 8069% from 2012 to 2013.
• On July 9, 2016, the payment per block dropped from 25 to 12.5BTC. The price-performance increased, but no longer at the same rate, and fluctuated in the 40-50% boundary over the year.
• On May 11, 2020, the pay decreased again from 12.5BTC to 6.25BTC. The price doubled on the halving day and continued the uptrend.
• April 20, 2024, miners now receive 3.125BTC. Bitcoin demonstrated a record high of $73780.

Is it possible to predict the long-term impact of halving on Bitcoin?

Reducing the reward to 3.125, BTC could affect the profits of small players and reduce the desire to mine Bitcoin. As long as halving is correlated with the subsequent bullish trend, there is cost overlap due to price growth. But, still, the growth of mining complexity and, accordingly, the cost of equipment modernization will lead to the displacement of small miners and the distribution of capacity among the largest mining pools.
Another option is the change of miners’ priorities to other coins, NFT, DeFi, and new projects, where it will be possible to use the capacity of the equipment.
For miners, what does halving mean in crypto mean reducing margins by 50% and finding new ways to make money.

What are the prospects for the next Bitcoin halving?

The last halving occurred in 2024 when 840,000 blocks were mined. Analysts say the price will rise to $80-90,000 this year and double to $150,000 in 2025.
The next Bitcoin halving cycle should occur in April 2028 after mining 1,050,000 blocks. Demand is predicted to remain consistently high, and new incentives for miners will emerge.

Summary

The cryptocurrency market is volatile, and the impact of halving plays a significant role in currency fluctuations. In anticipation of the upcoming halving, it is worth analyzing the price trend over the past periods and understanding the reasons for upward/downward trends. Additionally, even when Bitcoin has had periods of decline, it has recovered and shown strong growth. It is worth considering holding Bitcoin until the subsequent rise. One way to mitigate risk is to diversify your portfolio, clearly define the level of risk for each investment, analyze the costs of mining, and find solutions to reduce energy costs.