Bitcoin Halving: The Major Event That Changes Everything Every 4 Years

By: Jack Boyd

Bitcoin halving article.

Debatably, the most important event in Bitcoin’s life has just passed us by very recently. Some will know it and others won’t, but at the end of the day, it affects everyone whether you realize it or not. People who actively hold Bitcoin (sometimes referred to by its ticker symbol BTC) will directly be influenced by it in the short and long term. While those who do not partake in or care for that matter, could still see the effects of its product in the years to come. So, what is this quadrennial event you may ask? Well, to put it simply, it’s the Bitcoin halving, and in more complex terms, it is a programmed reduction in the block reward granted to miners, occurring approximately every 210,000 blocks, which serves to incrementally decelerate the issuance rate of new tokens until a 21 million supply cap has been reached. Of course, while general awareness of Bitcoin might be substantial due to the necessity of knowing more depth about the Bitcoin protocol, it is statistically estimated that less than 10% of the global population will have any learned reaction to the term: “Bitcoin halving”. As a result, in this article, you will learn about blockchain, crypto mining (more specifically for Bitcoin), cryptography (security essentially), transactions, BTC supply, and the economic implications of the halving. By the time you get to the section specifically about the halving you should have more than enough knowledge about bitcoin to understand why the halving is so crucial, important, and revolutionary when it happens every four years.

THE BLOCKCHAIN & CRYPTOGRAPHY/TRANSACTION:

The blockchain, as the name may suggest, is comprised of data blocks that are linked into a massive chain that is undatable by default, meaning that in its standard/initial configuration, it cannot be modified or altered. This state is set to ensure that changes cannot be made unless actions are taken to enable editing. There is an extremely unlikely and complicated way in which the blockchain could be edited, however, it would require extraordinary measures of compromise to the fundamental principles of the technology to make it happen. The reason this is the case is to ensure safety and security throughout the blockchain to protect information all around. Starting with data, once information is written into the blockchain, for security reasons, it is recorded and linked together using cryptographic hashes (which constitute the backbone of crypto security as it uses a mathematical algorithm to validate data. Furthermore, its function is to protect information’s confidentiality and authenticity through time stamps and transaction data). This dives further into security by the ways in which, in Bitcoin’s case there is decentralized control through Proof-of-Work, meaning network members take time and effort in solving encrypted hexadecimal numbers to receive a reward in confirming a transaction safely (we will get more into this in the mining section). The blockchain is also well-known for its transparency and trustworthy data records as it maintains a permanent record of transactions. Furthermore, it is tamper-resistant, and the only way it could be edited would be if someone managed to gain control of the majority of the network’s computing power, which is highly infeasible, especially for large and well-established blockchains.

CRYPTO MINING:

It should first be noted that this has nothing to do with going into a cave with tools and hoping to come out with some fancy rocks you can sell for money once refined. For many cryptocurrencies, Bitcoin included, mining is a way to process transactions and mint new tokens (bring new Bitcoins to life basically). This process not only helps keep currencies like these alive but also happens, in part, to maintain and secure the blockchain. One thing to quickly note is that there are many different blockchains. For example, Bitcoin is on a different blockchain to Ethereum (another popular cryptocurrency), but for all intents and purposes of this article, we will just talk about Bitcoin, and so the other blockchains are irrelevant to an extent. Something that is very interesting about the blockchain is that it would be practically impossible to take down alone, and even a large group of people (like a government for example) wouldn’t be able to do it with the snap of their finders. This is in part because of the function that crypto miners (referred to as nodes) play in the build-out of the blockchain. Because these nodes are the backbone of Bitcoin in this case, without enough of them, the integrity, security, and resilience of the Bitcoin network would be compromised. Without them completely, bitcoin would cease to exist because it would have nothing to operate its systems essentially. If all nodes were indeed shut down all at the safe time, say because of a loss of electricity, the ethernet (a system all around us to allow for electronic devices and such to communicate), or through damage, the Bitcoin network would be unable to process transactions, mining would halt, and the network would fragment into isolated parts. Although this scenario is highly unlikely, if it were to happen, it would be a massive task to restore everything back to normal function because it wouldn’t be as easy as getting all the nodes back online. The importance of knowing this is to show the “safety” of these systems in relation to attacks or compromises. Furthermore, even though governments are trying to regulate blockchains like Bitcoin more and more because they are afraid of not having control; they fundamentally can’t, because of a lack of resources to make a majority attack and the only feasible way for them to do it would be to shut off the worlds access to internet or electricity forever. This continues to add to the power Bitcoin holds and its scalability.

BITCOIN SUPPLY & THE HALVING:

The moment you’ve all been waiting for, the Bitcoin halving and its importance. As mentioned before, the halving only occurs roughly every 210,000 blocks (blockchain confirmations of data) or, in more user-friendly terms, every 4 years. To do a bit of a recap, one job of crypto miners is to mine new coins onto the blockchain, and while doing this, they earn a reward sort of as payment for the work it took. The Bitcoin supply cap is set at 21 million so there will never be more than that mined. The reason why there is a halving is because it halves the amount of Bitcoin that can be mined every day while also halving the reward for mining a specific amount of Bitcoin. This means that the blockchain can stagger the time in which it takes for all Bitcoin to be mined onto the blockchain for good. Because of this control on supply, every time a halving happens, there is a heavy upward leading fluctuation within prices because while supply drops, demand stays the same and, in the long term, continues to increase. To show an example of this, let us say a company was going to make a product called ABC, and they were only going to make 5,000 units of that thing and sell them all over the course of a decade. In the first year, they would sell 2,560 units and in the second year 1,280, and third 640, and so on and so forth until all 5,000 units are sold (Note: this is an accurate representation of what happens with Bitcoin, but the numbers are not the same in the case of Bitcoin). Continuing with this example, people are trying to get their hands on this product, yet every year it gets harder and harder to easily get ABC, which in turn drives demand each year the halving happens. And by the time all the products have been released onto the market, there will be a frenzy of people taking action to get at it for the benefits it has by owning some of it. It is essentially the same theory as Bitcoin halving. On top of this, there is another phenomenon that happens with the halving, and to show it, let's use the same company selling ABC again. Let's say that the day before the halving of product release happens the employees who allow the company to run smoothly are making X as their reward for working. Well, the next day, once the halving has happened, they will be making 1/2X and are still expected to work at the same rate for the company to function. In the case of Bitcoin, this same principle works to create competition among the miners because people would need to go out to buy more mining equipment (GPU: Graphic Processing Units) to get back to making the same amount of money as before. In this case, they would need to double the power to raise their output numbers, thereby making more blockchain rewards. These two aspects of Bitcoin halving are the exact things that drive price increases quickly. If you want to take just a few things away from this article on Bitcoin halving, it would be that it creates lower supply while demand increases over time and creates more competition within the market for blockchain employees (nodes) to keep up with the competition. While the Bitcoin halving doesn’t create, massive price increases the second it happens, typically over the course of the next year, there is a clear upward trend which typically levels out at the end of year one, post-halving until the next one 3 years after that point. As shown by this graph: