Bitcoin Halving Beginner’s Guide: All You Need to Know

Beginner’s Guide / 28.03.2020

Considered one of the most important events in the Bitcoin community, the Bitcoin reward halving is the process by which the incentives available to miners decrease by half of what it currently is. The Bitcoin Halving mechanism was put in place by founder Satoshi Nakamoto to incentivize the network and slowly distribute the 21 million currency supply.

Historically, the Bitcoin reward halving has been known to be a prelude to a monumental bull run. On 9 July 2016, the market saw a surprising turn of events during the last halving event. When the rewards fell from 25 Bitcoins per block to 12.5, we saw an instant surge to $650. Later next month, the trend continued with Bitcoin reaching $2500. As the year ended, the market saw its highest demand, pushing the price way above $20,000.

Despite the market reaching new all-time highs, the 2016 halving event was nothing compared to 2012. With Bitcoin hanging at $11 in November 2012, the halving pushed the price way above $20. Later next year, continuing with the trend, the price of Bitcoin reached $1100. A 100x price increase in less than a year was monumental, to say the least.

When is the Bitcoin Halving?

The halving mechanism was planned such that the rewards go down roughly every four years, or specifically every 210,000 blocks. The next block reward halving is expected to occur when blocking no. 630,000 has been successfully mined. According to most estimates, 18th May 2020 could be the day the rewards go down. On this day, we will see the block reward fall from 12.5 to 6.25 bitcoins.

Below is the schedule by which the halving process is said to be executed.

bitcoin halving events

Bitcoin’s bull runs after the first two halvings Source: The Journal Blog.

Why is the Bitcoin Halving Event Crucial?

It is quite evident that Bitcoin halving events are important for traders, miners, and network participants. The halving effectively reduces the number of new bitcoins being generated by the network. Following basic economic assumptions, this limit in the supply of new coins could bring about additional demand as there are fewer coins for an increasing number of interested buyers.

But the spectacle doesn’t just end there. Bitcoin has always been the spearhead of the entire crypto market. Some even term Bitcoin as the crypto market’s gateway currency, as more people are susceptible to explore other “altcoins” after they get into bitcoin. The last halving was nothing different. In 2017, about 9 months after the halving event, the entire crypto market saw it’s greater ever run. Looking at Bitcoins’ returns, a huge pump was seen in other cryptocurrencies as well. Many currencies saw their highest ever listings, just because Bitcoin was pushing the market through the sky.

Now that we understand what the halving event means for the market, it is important to know what it means for other cryptos. We can expect many projects to take advantage of the upcoming 3rd Bitcoin bull run, but some of them will push the hardest.

Effects of Bitcoin Halving on the Crypto Market

There is an immense debate in the community about the effects Bitcoin halving might have on the entire crypto market. Some experts say that this time around, the impact could be negative, whereas many believe we should trust the historical trend and brace ourselves for another trip to the moon.

The last bitcoin bull run, which peaked in early 2018, started showing signs of an upward trend almost a year after the halving event. So, it is still quite early to call the shots. But looking at the run, there are quite a few things we can see happening again. For instance, Ripple, and its native token XRP, were quite easily the best performing crypto asset in the historic run. The gains during the bull run were astronomical. According to certain estimates, XRP saw a price increase of 36,000%. Since then, Ripple has made its journey downwards to about the same place before the 2017 bull run.

Similarly, the entire crypto market has shown signs of downfall. With the recent advent of the Coronavirus and emergency economic packages announced by governments worldwide, it is quite tough to pinpoint the effects halving might have. But if history plans to repeat itself, we can be assured that the halving, along with the sudden inflow of fiat money supply, could result in another domino effect that brings historical price fluctuations, shadowing even that of the previous halving.

Sudarshan M is a long time crypto-enthusiast. Pulled in by bitcoin early on, it did not take long for Sudarshan to divert all of his academic attention from business studies to blockchain by doing his Masters and eventually pursuing his PhD in the subject.