In this series I want to explain some terms that are relevant to the amazing world of cryptocurrencies to help newcomers understand it better. Today I want to talk about the Bitcoin Halving event that happens every 4 years.
Previous Parts:
Crypto Basics #1: What even is a Blockchain?
Crypto Basics #2: What are Smart Contracts?
Crypto Basics #3: What is a Cryptocurrency Wallet?
Crypto Basics #4: What is Mining and Proof of Work?
Crypto Basics #5: What is Staking and Proof of Stake?
Crypto Basics #6: What is Decentralized Exchange? And how do they work?
Crypto Basics #7: What are Stablecoins? And How do they work?
Crypto Basics #8: What are Coins and What are Tokens?
Crypto Basics #9: What even are NFTs?
Crypto Basics #10: What is Yield Farming and Liquidity Mining?
What is the Bitcoin Halving?
Bitcoin has a max supply of 21 million, but this coins need to be created by miners first. Each time a miner ads a new block of transactions to the blockchain he will get transaction fees and newly created BTC as reward. This emission of new BTC per block is reduced by 50% during the Bitcoin Halving event that happens every 4 years. This means that the Bitcoin inflation is constantly shrinking until it reaches zero.
Bitcoin started with an emission of 50 new BTC per block but since then we have had 4 halvings so the current emission is 6.25 BTC per block. The next halving is planned to happen in 2025, which could cause the entire crypto market to become bullish shortly before.
So far every halving has caused a Bull Run because the inflation is shrinking and also because the miners are getting less BTC as reward while their cost stays the same so each new BTC is backed by more energy cost and computing power. Because the value of most other cryptocurrencies is strongly correlated to BTC, they also end up gaining value.
The effect of the Bitcoin halvings will likely decrease in the future because the emission of new coins will have less impact if more and more of the supply is already circulating. But for now, the next halving in 2025 is already very much anticipated and could have a large impact.
To slowly reduce the emission of new coins, is an effective method of spreading the initial supply fast and to reward early users the most while continuously lowering the inflation. That’s why many other cryptocurrencies are also using this approach. Almost all Bitcoin forks as well as are using halvings too. Other blockchains also use different versions, like the Osmosis blockchain that has a "thirdening" event where the emission of new coins is divided by 3 every year. However, the havlings of other chains are not nearly as hyped as the Bitcoin Halving.
I hope that short explanation was helpful for some newcomers. I will keep writing more such short articles about various crypto terms. Feel free to follow me if you are interested.
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