Bitcoin halving: history, mechanism, and future of the digital asset

The Origins and Essence of the Phenomenon

Since the launch of Bitcoin, a unique mechanism has been established that regulates the rate of creation of new coins. This phenomenon, known as halving, is a programmed reduction in the reward received by network participants for validating blocks. At regular intervals, the reward is halved, which ensures a gradual slowdown in issuance and guarantees reaching the maximum limit of 21 million BTC.

Economic basis of the mechanism

Halving is a key element of Bitcoin's design that ensures its scarcity. Unlike traditional currencies that central banks can print without limits, the supply of BTC is strictly limited. This characteristic makes Bitcoin a digital asset with predictable inflation, which attracts investors seeking protection from devaluation.

The mechanism works as follows: the event occurs every 210,000 blocks, which corresponds to approximately a four-year cycle. At each stage, the miners' reward for confirming transactions is halved, which slows down the rate of new coin creation.

Timeline of Events

The first halving of rewards occurred in 2012, when the block reward size dropped from 50 BTC to 25 BTC. The second event in 2016 reduced the reward to 12.5 bitcoins, and the third in 2020 brought it down to 6.25 BTC per block.

The next event is expected in April 2024 when block height 840,000 is reached. The reward will then drop to 3.125 BTC. This will be a significant milestone: by that time, more than 90% of all bitcoins ever created will already be in circulation.

Interestingly, the 32nd event will be the last in Bitcoin's history — after that, new coins will stop being generated altogether. By that time, the maximum supply of 21 million BTC will have been reached, which is projected to occur around the year 2140.

Impact on the Investor's Portfolio

Many participants in the cryptocurrency market mistakenly believe that halving can somehow affect the number of coins in their wallet. In reality, this event does not directly impact the holdings of each individual user.

However, the indirect impact can be significant. A reduction in rewards for miners means a decrease in the supply of new BTC in the market, which has historically put upward pressure on prices. Additionally, these events attract increased attention from the press and investors, often provoking volatility and a redistribution of funds within the crypto ecosystem.

Traders and analysts closely monitor such events as they serve as historical milestones in the cyclic development of the cryptocurrency market and are often accompanied by significant price movements of assets.