Bitcoin, the world's largest cryptocurrency by market capitalisation, is approaching the next halving event, marking a 50% cut in rewards for mining new blocks on the Bitcoin blockchain.
Affectionately dubbed 'the halvening', the event was pre-programmed by bitcoin's pseudonymous creator, Satoshi Nakamoto, to create a predictable and deflationary economic model. When bitcoin first launched in 2009, the reward for mining new blocks on the blockchain was 50 BTC (approximately AUD $5m today). This reward halves every 210,000 blocks which has been roughly every four years. To date, we have witnessed:
The first halving in November 2012, reducing the reward from 50 BTC to 25 BTC;
The second in July 2016, further reducing the reward to 12.5BTC; and
The third in May 2020, when it dropped to 6.25 BTC.
There are now over 1 million people worldwide that hold bitcoin in their digital wallets.
The upcoming halving is expected to occur on Saturday morning Australian time as block reward are reduced to 3.125 BTC.
Bitcoin mining is how new Bitcoin is introduced into the system and how transactions on the Bitcoin Network are verified. The halving is a key part of Bitcoin’s economic model. By decreasing the rate at which new bitcoins are generated, and capping supply, Bitcoin is intended to be deflationary. This programmed scarcity is similar to precious metals like gold, which have limited supplies and are labor-intensive to mine.
The reduced block reward means that mining becomes less profitable unless there is a compensatory increase in the price of Bitcoin. This economic pressure can lead to a shakeout of less-efficient miners and a consolidation in the mining industry towards more efficient operations.
Bitcoin mining has faced backlash due to the immense computational power and energy output required, leading the New York State Legislature to pass a bill blocking non-renewable crypto mining and the European Union angling to ban bitcoin mining. However, a number of initiatives are ongoing to harness renewable or surplus energy toward mining.
The Bitcoin halving is a cornerstone event in the landscape of cryptocurrency, and has historically been coupled with a run up in Bitcoin prices. This pattern has again unfolded in the lead up to the 2024, boosted by the advent of Bitcoin exchange traded funds in the United States.
Happy Halvening to one and all!
By Michael Bacina, Steven Pettigrove and Luke Misthos