The halving mechanism is embedded in Bitcoin's design to ensure that its total supply will never exceed 21 million coins. This deflationary mechanism increases the scarcity of bitcoin over time, making it more valuable as a finite resource.
From a technical standpoint, the halving ensures that the rate at which new bitcoins are created is reduced over time, which slows down the issuance of new coins. This is a key aspect of Bitcoin's value proposition as a store of value and a hedge against fiat currency inflation.
The Bitcoin network is peer-to-peer, with transactions made directly between users. These transactions are verified through Bitcoin’s proof-of-work consensus mechanism by a network of nodes (miners) and included in a public ledger (blockchain) through a process called mining.
New bitcoins are created during the mining process and are used as a reward for the miners. This acts as an incentive for miners to independently validate transactions and maintain the integrity of the blockchain.
Halving is the scheduled reduction of this block reward (also known as block subsidy) by half. This reduction in the rate of creation of new bitcoin ensures scarcity of the asset, and limits the total supply, which is capped at 21 million.
Historically, Bitcoin halvings have been landmark events that are closely watched by the community. There have been three previous halvings before the 2024 event:
The 2024 halving will see the block reward drop from 6.25 to 3.125 BTC. This system will continue until all BTC is mined, with the final halving expected to occur in the year 2140.
Previous halvings have typically been accompanied by a price appreciation, caused by the reduction in the rate of supply of new bitcoin alongside a general increased demand for the asset. That said, it is important to note that halvings alone do not dictate the value of BTC, as many other market factors also influence its price.
For the network, the decline in block rewards likely leads to an industry leaning more heavily on transaction fees, thus raising challenges in profitability and security for miners.
What can be guaranteed is a significant amount of media coverage and chatter surrounding the event. This in turn attracts more and more newcomers to the asset, which unfortunately means scammers will be waiting to exploit such an opportunity. As Trezor was originally designed to be the safest and most convenient way to protect your bitcoin, the best course of action any newcomer can take is to secure their bitcoin using a Trezor hardware wallet, and follow the usual best security practices:
It’s always a good time to buy bitcoin! If you’re particularly interested in investing in bitcoin as part of a broader portfolio, the anticipation of the halving ordinarily drives the price of bitcoin up, but it can of course also increase market volatility.
Historically, the price of bitcoin has followed a four-year cycle believed to be associated with each halving event. Each halving has led to a substantial rally leading up to the event, followed by a brief correction and period of consolidation before the major bull run.
Halvings are significant events in Bitcoin blockchain, and they are core to the monetary policy of the asset. The 2024 halving is a continuation of Bitcoin's deflationary monetary policy, designed to increase scarcity and potentially drive up value over time. The halving event also has implications for miners, as it can result in consolidation within the mining sector, with smaller miners potentially struggling to remain profitable and larger players dominating the industry. The shift towards relying solely on transaction fees once all 21 million Bitcoins are mined will also require miners to adapt.
We cannot say exactly how and when the price of bitcoin will change, but historically halvings have been associated with a general appreciation in value. This will happen if the supply reduction leads to positive price action, which has been observed historically. The 2024 halving is also accompanied by other developments such as the launch of Bitcoin spot ETFs, decreasing confidence in devalued fiat currencies, and a broader positive opinion of Bitcoin—all of which can have a positive effect on its value. However, the market is unpredictable, and other factors will also influence the future price of bitcoin.
We cannot predict the future, but we can look back and see the effect(s) of previous halvings. Each halving has historically led to significant price volatility that has been followed by a bull run in the months or years following the event.