The Bitcoin Halving: What it Is And Why it Matters

Key Takeaways

The Bitcoin block subsidy halving, also called the “block reward halving” or simply the “halving”, is a cryptographically-programmed event that forms part of Bitcoin’s monetary policy.

Part of Bitcoin’s code from its creation, it cuts the amount paid to miners by 50% approximately every four years — hence its name.

Halvings are a crucial part of Bitcoin’s Proof-of-Work (PoW) consensus mechanism, and reflect its strict emission schedule, decreasing the number of new coins added to the existing supply until this reaches zero.

Miners are impacted by halving events in various ways, and must adapt to new mining ‘eras’ as the amount available to earn per block changes over time.

What Is the Bitcoin Halving?

The Bitcoin halving is the name given to the event within Bitcoin’s emission schedule which cuts the per-block amount paid to miners by 50%.

This event occurs every 210,000 blocks, or roughly every four years, with exact timing varying as blocks can take varying lengths of time to be added to the Bitcoin blockchain.

So far, Bitcoin has had three halvings, with the fourth due in April 2024. When it first launched in 2009, the block subsidy was 50 BTC per mined block. Currently, it is 6.25 BTC, and from April 2024 will be 3.125 BTC.

Eventually, the block subsidy will end altogether, and will correspond to the entire possible BTC supply being mined — a watershed moment due in the year 2140.

The chart below summarizes how the block subsidy has changed over time since the first occurrence in November 2012, along with respective U.S. dollar values at the time and later on.

Bitcoin Halving: Historical Price Development

This touches on another topic closely related to the halving — its impact on BTC price performance both before and after each event.

While no one can guarantee that the halving — which reduces Bitcoin’s rate of emission relative to the current supply — will have a positive impact on price, such a phenomenon has been consistently observed since 2012.

The mechanics of this are logical: each halving alters Bitcoin’s stock-to-flow ratio. This describes how many new units of a given asset — the flow — are added to the current supply — the stock.

Each time the block subsidy decreases, the ratio bolsters Bitcoin’s scarcity in terms of how many units are actually available for purchase.

Based on this, it has been observed that halvings produce upward BTC price momentum. This tends to happen asymmetrically, with the event itself not accompanied by a snap price gain reflecting the instantaneous reduction in emission.

The repetitive price growth pattern centered around halvings is captured in the so-called “halving cycle” pictured below.

For reference, 2024 has become the first year to challenge the established halving cycle norms. Instead of hitting a new all-time high around 500 days after its previous halving, BTC/USD achieved this a full 40 days before the 2024 halving. 

This has fueled a debate over halving cycle validity, with some contending that a new paradigm is now emerging. That said, the cryptograghically-programmed aspects of the halving will remain the same, as long as consensus permits. Here, Bitcoin’s Proof-of-Work consensus mechanism ensures that preserving the existing parameters is the only way of ensuring the financial prosperity of network participants.

Who Chose the Bitcoin Distribution Schedule and Why?

Bitcoin’s emission schedule has been part of its code since it launched in early 2009. 

This and the cornerstones of its PoW mining algorithm were put in place by the anonymous developer Satoshi Nakamoto, whose identity remains unknown. While a large number of coins are thought to be under his control, Nakamoto disappeared from forums and has not been heard from since.

The reasoning behind the exact numbers involved in the Bitcoin supply is likewise not entirely understood. While still active, Nakamoto described its 21 million supply cap as an “educated guess” for a suitable limit.

“It was a difficult choice, because once the network is going it’s locked in and we’re stuck with it”

he wrote in an email to early Bitcoin developer Mike Hearn which the latter later made public. 

“I wanted to pick something that would make prices similar to existing currencies, but without knowing the future, that’s very hard. I ended up picking something in the middle.”

This “locked in” supply cap feature, together with the self-governing network rules which preserve it, is arguably the backbone of Bitcoin. Halvings boost the stock-to-flow ratio every 210,000 blocks, steadily turning Bitcoin into the least inflationary monetary asset in history — and ultimately a deflationary one.

To change these characteristics which have functioned successfully since day one, network consensus would be required — but doing so would automatically impoverish every participant, and hence any effort to expand the supply, for instance, contains no logical sense.

In another email, Nakamoto summarizes halvings as follows:

“New coins are generated by a network node each time it finds the solution to a certain calculational problem. In the first 4 years of the bitcoin network, amount X of coins will be created. The amount is halved each 4 years, so it will be X/2 after 4 years, X/4 after 8 years and so on. Thus the total number of coins will approach 2X.”

When Is the Next Bitcoin Halving?

Bitcoin halves the block subsidy once every 210,000 blocks, but these can take varying lengths of time to be mined.

Bitcoin’s 10-minute block time is only a guide and can vary, with mining difficulty adjustments seeking to ensure that blocks emerge more or less consistently. As a rough estimate, 210,000 blocks take around four years to mine.

At its launch, Bitcoin had a block subsidy of 50 BTC. After its next halving, due in April 2024, the subsidy will be only 3.125 BTC per block.

Thereafter, the emission schedule dictates that halvings will continue every 210,000 blocks until there is no more supply left to mine — an event due only in 2140.

How does the Bitcoin Halving Influence Price?

While the technical ‘rules’ of halvings are immutable, there is no strict mechanism in place to cause BTC price action to respond to them in a given manner.

As Bitcoin has grown, halving events have produced varying market reactions, leading to a debate as to what might happen in the future.

Initially, Bitcoin offered little reaction to the events themselves, only beginning a parabolic upside phase months later. Nonetheless, halvings have preceded runs to new all-time highs. One argument suggests that halving events offer only muted price activity because the market has ‘priced in’ their impact well in advance.

The prelude to the latest 2024 halving, however, has already seen price behavior diverge from the norm. Bitcoin hit a fresh all-time high not only sooner than previously, but around 40 days before the halving actually occurred.

This in turn has led market observers to suggest that a parabolic ascent and macro price top may come earlier than in previous four-year halving cycles.

Miners, meanwhile, pay close attention to halving cycle timing. It is their income which is impacted first and foremost, forcing increasing reliance on transaction fees as time goes on. That said, increasing prices allow some leeway when it comes to profitability, and as of Q1 2024, mining Bitcoin is highly profitable — as evidenced by increased BTC sales by miners in the run-up to the halving.

What Happens When There Are No More Halvings?

The end of the Bitcoin mining era may not be an event that anyone alive today will witness, but its psychological impact reaches back to the present.

As Nakamoto summarizes in the Bitcoin whitepaper:

“Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”

Critics often argue that when block subsidies hit zero and the entire BTC supply has been mined, there will be no incentive for miners to participate in the network. In turn, security will dwindle, leaving Bitcoin vulnerable to mass attacks and endangering its value.

Miners already have to contend with diminishing subsidies and fluctuating fees — these phenomena have always been part and parcel of network participation. Nonetheless, the incentive has always endured, and the rapid expansion of Bitcoin mining operators is testament to Bitcoin economic proposition: participating, in the long term, is always more beneficial than not participating.

In 2140, Bitcoin, if it matures as envisioned by Nakamoto, will be a fees-based economy. Miners will get their incentives from translation fees alone, and these should logically be considerably higher than today in fiat terms. 

At the same time, transactions between individuals are unlikely to occur ‘on chain’ — they will use so-called Layer 2 networks, with large batches of transactions synced to the Bitcoin blockchain so that fees do not inhibit day-to-day payments.

Should BTC Holders Worry About the Bitcoin Halving?

While Bitcoin halvings can produce price volatility and fluctuations in miner activity, for the average user, they do not constitute a cause for concern.

Using Bitcoin means accepting its consensus rules and economic mechanism of action. If a user considers these insufficient, they would need to participate as a node on the network and summon consensus to change its parameters. 

The fact that no such attempt has ever succeeded reinforces the fact that the current fundamental parameters represent the most economically viable setup for the prosperity of network participants and investors alike. 

The Bottom Line

The block subsidy halving is one of the non-negotiable pillars of Bitcoin, without which the largest cryptocurrency by market cap would not function as it has since its inception.

The event, which occurs once per 210,000 blocks, cuts the amount of ‘new’ bitcoins paid to miners by 50% per block.

Halvings allow Bitcoin’s strict emission schedule to stay on track to release the entirety of the finite 21 million supply by the year 2140. After this, Bitcoin will become a deflationary currency, and miners will rely solely on transaction fees for revenue.

While BTC price action can become volatile before, during and after halvings take place, history has shown that the events in and of themselves do not produce an immediate enduring change in price trajectory. Instead, bull markets tend to gather speed months afterward, but as of 2024, an exception to historical norms is currently playing out.

Investors and traders thus need to be mindful of the halving schedule given its propensity to induce volatility, but in principle it is something which first and foremost affects Bitcoin miners.

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FAQ

What exactly is a Bitcoin halving?

Bitcoin experiences a block subsidy halving every 210,000 blocks, or roughly every four years. The “halving” term refers to the 50% reduction in the reward paid to miners who find the solution to a block of transactions. This reward, or subsidy, began at 50 BTC per block, but is now just 6.25 BTC and after the next halving in April 2024 will be a mere 3.125 BTC. Eventually, there will be no more halvings at all.

How many Bitcoin halvings are left? 

Bitcoin’s strict supply cap and emission schedule mean that there can only ever be 32 halving events — no more, no fewer. Three have already passed, meaning that 29 halvings remain. These will occur at equal intervals of 210,000 blocks, as outlined in Bitcoin’s code.

How many bitcoin are left?

Bitcoin has a finite, immutable supply of 21 million units. There will never be more than this, as altering the supply, even with the necessary network consensus, would destroy the worth of every investor’s holdings. The number of bitcoins left to mine decreases with each block. From April 2024, this will happen at a rate of 3.125 BTC per block.