Bitcoin Halving Explained

By Aleksandra Wilson
3 min read September 29, 2021

How Does Bitcoin Limit its Supply?

In the mining world, it’s well known that Bitcoin has a limited supply of 21 million tokens, and Bitcoin halving happens every few years. But what is Bitcoin halving? In simple terms, it’s the event where the rewards given to miners are cut by half. This event, following Bitcoin’s pre-set rules code, should happen every four years. That means that the amount of Bitcoin tokens distributed to the miners as rewards halves.

About the Supply

In order to understand halving, first, we should understand what the theory of the supply of Bitcoin is about. Satoshi Nakamoto, the mastermind behind Bitcoin, strongly believed since the beginning that scarcity creates value. It can be compared to there being only one Mona Lisa, which makes it more valuable than if there were several of them. The same thing happens with the amount of gold worldwide; because it is limited, its value increases.

Based on that same principle, Bitcoin became the first revolutionary digital asset by making it scarce. There will only be 21 million coins of Bitcoin ever issued and distributed. This limiting strategy of BTC is totally the opposite of the principles of how fiat currencies work, such as the USD. In the beginning, the US dollar had a certain amount of backup in gold as a reserve. That is a concept known as the gold standard. As time went by, those rules adapted so economies could print more money, and they could stimulate economies in need. That way, governments can print money every time they need to. 

What is Bitcoin Halving?

First, we have to clarify that mining is the process through which new Bitcoin is minted as a reward for blocks. Miners are in charge of securing and maintaining the ledger of Bitcoin, and in exchange for it, they get Bitcoin. Still, every four years, said reward gets reduced by half; therefore, the term assigned to it is “halving.” Each Bitcoin halving event minimizes the number of new coins in the supply until 2140, when the last Bitcoin will be minted.

What Makes Halving Unique?

Since Bitcoin is decentralized, which means no one controls it, it needs a great set of rules. One of the most important rules is how many Bitcoins get minted and how they are released and distributed. The halving event occurs every four years, the whole system is set in stone and basically impossible to change. Specifically, that rule makes Bitcoin practically hard money, like the case of gold, which has a limited supply almost impossible to change.

The Impact it Will Have on the Price.

There are different opinions about how halving will impact the price of the crypto. If we go by the book, in theory, because of supply and demand laws, the fact that the supply is limited should increase the price. Although, some experts claim that it could potentially have the opposite effect based on the history of Bitcoin halving events. Not only by stalling the price but actually crashing it.

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