Every 4 years on average (210K blocks) the reward granted to Bitcoin miners for adding a block to the blockchain is cut in half. The Bitcoin halving was designed by Satoshi Nakamoto to keep Bitcoin’s inflation in check.
Since the halving basically cuts the supply of new Bitcoins in half, many believe this event will have a dramatic effect on Bitcoin’s price.
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First, there are three key concepts about the bitcoin network you need to know that will make bitcoin halving easier to understand.
The concepts are the bitcoin blockchain, bitcoin mining, and the bitcoin supply.
The bitcoin blockchain is basically a live, running record of all the bitcoin transactions.
Once a certain amount of transaction data has been collected, a block is formed and added to the ledger.
So, blockchain is simply groups of transaction data that are linked together.
The basic structure of the bitcoin blockchain consists of a network of computers around the world with bitcoin software installed on them.
The verification and posting of transactions on the blockchain is completed by miners via a process called mining.
Miners are people or pools of people that use computer processing power to maintain the bitcoin blockchain.
The basic concept you need to know about bitcoin mining to better understand the bitcoin halving event, is that miners are rewarded with bitcoin each time they verify a new block of transactions.
Mining rewards are a combination of newly minted bitcoin units that were not previously circulating, and transaction fees of bitcoin that were already circulating.
These rewards are in place to incentivize miners to participate in the mining process to ensure the bitcoin network continues to be audited and essentially maintained.
Next, bitcoin was programmed with a maximum supply of 21 million BTC.
This 21 million unit maximum was established to mimic the stable inflation rate of the precious metal gold.
Halving, in terms of bitcoin, refers to the reduction in bitcoin block rewards issued to miners by half.
Currently, the block reward is for miners is 12.5 BTC of newly minted bitcoin that were not previously in circulation.
When the halving occurs in May 2020, the block reward will halve, or reduce by half, which will give miners 6.25 BTC of newly minted bitcoin per validated block.
Historically, the 12 to 18 months immediately following a halving event, bitcoin pricing didn’t show much movement.
As bitcoin has become more popularized since the last halving in 2016, the upcoming halving in May is likely already priced in and has been for a while.
Even then, as with previous halvings averaging 12 to 18 months before noticeable changes, the bottom line is this.