What Is Bitcoin Halving and How Does It Impact Bitcoin Price?

Bitcoin halving refers to the periodic reduction in the block reward that miners receive for adding new blocks to the Bitcoin blockchain. 

This event occurs approximately every four years and limits the supply of new Bitcoins entering circulation. Here's an in-depth look at what bitcoin halving is and how it can impact Bitcoin's price.  

When does bitcoin halving occur?

Bitcoin halving happens once every 210,000 blocks mined or about every four years. This is hardwired into Bitcoin's code which limits the total supply to 21 million coins.So far there have been three halvings:

- November 2012 - Block reward dropped from 50 to 25 bitcoins

- July 2016 - Block reward declined from 25 to 12.5 bitcoins  

- May 2020 - Block reward reduced from 12.5 to 6.25 bitcoins

The next halving is predicted to occur sometime in 2024 when rewards will reduce further from 6.25 to 3.125 bitcoins per block. 

Halving and bitcoin mining

Bitcoin mining is the process where high-powered computers compete to add new transaction blocks to the blockchain and earn bitcoin rewards in return. The bitcoin protocol halves these rewards on a regular schedule to control supply and maintain value.  

With each halving, miners receive fewer coins, making their operations less profitable unless Bitcoin's price rises to compensate. On the flip side, reduced supply combined with steady demand can cause prices to increase.

Impact on bitcoin price 

Opinion is mixed on whether bitcoin halvings lead to sustained price increases. Historical data shows that halvings are typically followed by bull runs that peak about a year later. However, some argue that the price impact may already be priced into the market.

When the supply of new bitcoins declines due to a halving event it can put upward pressure on prices if demand remains strong. Some speculators believe this built-in scarcity makes Bitcoin more valuable in the long run similar to precious metals. 

However, Bitcoin price is also driven by other factors like regulation, adoption rates, media coverage, and competing cryptocurrencies. Ultimately, no one can predict with certainty if halvings will consistently impact value over the long term.

Bitcoin White Paper and halving

While the term "halving" is not specifically used, Bitcoin's white paper discusses the capped supply of 21 million coins and the mechanism to control coin creation by reducing rewards every four years.

According to the white paper, adding new coins at a fixed rate is similar to gold miners expanding the precious metal's circulation. In Bitcoin's case, the resources expended are computing time and electricity.
 

The paper also explains Bitcoin's proof-of-work consensus and how it solves issues around voting power and decision making. Proof-of-work relies on CPU power rather than one vote per person/IP address, which helps prevent manipulation. 

Difficulty adjustments ensure that blocks are mined at regular intervals even as computing hardware becomes faster over time. This adjustment mechanism allows Bitcoin's built-in halving schedule to proceed as initially envisioned.

Should bitcoin holders be worried?

While halvings directly impact miners, average bitcoin holders typically have little reason to worry. The periodic reduction in new supply is a foundational component of Bitcoin's economics rather than an unexpected shock. 

Generally, they may affect prices either by appreciation or depreciation but the common denominator is managing inflation through scarcity.