Bitcoin halving - what it is?

On average, every four years we witness a phenomenon that shows the power of decentralization and autonomy of cryptocurrencies. It is halving, i.e. reducing BTC issuance by exactly half. The Bitcoin blockchain performs halving completely automatically, according to the specification of the network, every 210,000 blocks. The third halving took place on May 11, 2020 and reduced the reward for solving one block to 6.25 BTC from the previous 12.5 BTC. Halving BTC  significantly reduces Bitcoin's inflation (which is currently around 1.8% per year).

It also affects the price of BTC, as the supply of BTC decreases in the market and miners (especially the smaller ones) are often on the verge of profitability. Those who can afford it start accumulating BTC and try to weather the temporary drop in profitability, hoping for big increases once the post-halving dust settles.

This is the moment when the speed of generating new bitcoins is reduced by half. This happens approximately every four years.

It is no secret that the supply of bitcoins (BTC) is limited. After 21 million bitcoins are generated, the network will stop generating more. This is why BTC is often referred to as "digital gold" - just like real gold in the world, there is a limited amount of it and one day all the resources will be extracted.

Currently there are about 18 million BTCs in circulation, which accounts for about 85% of the total resources - this does not mean, however, that the supply of crypto gold will soon reach its maximum level. The reason for this is the protocol, which was encoded in the blockchain network at the very beginning. It is responsible for the fact that every 210,000 blocks comes to so-called bitcoin halving, after which generating new coins is more difficult. Just like in gold mining, where finding new deposits becomes more and more demanding with time.

The point is that the block reward is halved, so after each bitcoin halving, miners start receiving 50% less BTC for mining a block containing transactions in the bitcoin network.

Halving bitcoin is a process during which the number of coins generated by the network is halved. This causes the number of coins received by miners with each block to drop from 12.5 to 6.25 (then from 6.25 to 3.125. This is a cyclic process that is repeated regularly every 4 years and continues until the last bitcoin is extracted. Halving is necessary to keep the number of coins in the network at a certain level. The maximum number of coins that will be in the network after the miners have mined the last bitcoin is 21 million BTC.

Only 21 million Bitcoin blocks can be generated in the network. Bitcoins are extracted and those who extract them receive in return Bitcoins as their reward. When Halving follows, the miners receive 50% less Bitcoin for the same work. The goal of the Halving is to balance supply and demand. With less supply, there is more demand and thus the value of each Bitcoin is generally expected to increase.

As a result of previous Halving events, the price of Bitcoin has increased against the US dollar. For example, after Halving in 2012, BTC/USD prices fired up from $11 to over $1000 in one year - an increase of 80 times. After Halving in 2016, the Bitcoin price rose again; BTC remained in the $580-700 price range for several months and then slowly moved up to reach $900 at the end of the year.

Halving is a cyclical event during which the amount of generated Bitcoins decreases. This is necessary to keep the number of coins in the network. The process, repeated about every four years or so, will be carried out until all the cryptocurrencies will be mined, and there are exactly 21 million of them. It is predicted that this can happen in 2140.

The limited supply of coins makes that the final reward received by the miner will be exactly ... zero. This will happen when all the bitcoins have been mined - currently 85% of the entire cryptocurrencies resources have been extracted.