What is Bitcoin halving, and what happens when all Bitcoins are mined?
Mining is the technique through which Bitcoin and other cryptocurrencies that use proof-of-work consensus algorithms produce new coins. Miners use computing power to validate transactions and add new blocks to blockchains, ensuring their security and integrity. Miners get rewarded for their work with new Bitcoin blocks. These blocks are used to create new Bitcoin.
Read more about: How Bitcoin mining works and how to create new Bitcoins?
When Bitcoin’s pseudonymous creator, Satoshi Nakamoto, founded Bitcoin in 2018, s/he fixed the maximum number of Bitcoins at 21 million. It was required to keep the coins valuable. Satoshi also introduced a decaying rate to the blockchain to keep Bitcoins inflationary. This rate is set such that after every 210,000 blocks, miners’ incentives are cut in half, and there will only be 32 halvings. After this, we will reach the maximum supply of 21 million BTC, putting an end to the process of minting new coins.
So, what exactly is Bitcoin halving?
The incentive for mining or adding new blocks to Bitcoin’s blockchain is predetermined. However, every four years, the incentive earned by Bitcoin miners gets cut in half. This process is called “Bitcoin halving.”
Does halving affect Bitcoin’s price?
Cryptocurrencies, including Bitcoin, lack a central issuer or administrator who can regulate the price. Instead, it is decided through the market’s supply and demand. As a result of the halving cycle, the number of available Bitcoins reduces, increasing the value of Bitcoins still to be mined.
After each halving event, Bitcoin’s price has increased because only half of the prior amount of Bitcoin would be distributed upon validating each transaction. The first Bitcoin halving occurred on November 28, 2012. On the day of the first halving, Bitcoin was worth roughly $12. A year later, Bitcoin has grown almost 8,500% to close to $1,032. During its second halving in 2016, Bitcoin was worth around $650. In 2019, Bitcoin reached an all-time high of more than $20,000 a year and a half later.
How will the halving affect miners?
Initially, Bitcoin miners received a block reward of 50 BTC per block for validating transactions. There have been three halving events as of November 2020, and the block reward has become 6.25 BTC per block. On the surface, it appears that halving the payout every four years would provide miners with gradually reduced incentives to mine Bitcoin. However, this does not account for the increase in the prices of Bitcoin.
After each Bitcoin halving event, miners must evaluate whether they can afford to continue mining. It may involve looking for cheaper electricity bills and other ways to save on overall costs to keep mining rigs running and earning new coins.
When will the next Bitcoin halving occur?
The next halving will occur at block 840,000. As per CoinMarketCap’s Bitcoin halving countdown, it will occur in 2024.
What’ll happen once all the Bitcoins are mined?
As we know by now, there will never be more than 21 million BTC. Once every Bitcoin has been mined, which should happen by 2140, no more Bitcoins will be minted. Once the last Bitcoin gets mined, miners will no longer be rewarded with new Bitcoin for validating and securing transactions.
Although miners will no longer be required to create Bitcoins, they will be required to validate transactions. They will keep receiving transaction fees, which are the small payments when sending Bitcoin. Currently, transaction fees are much lower than the incentives for verifying a block and are insufficient to make mining economical.
However, these fees are anticipated to rise over time and become valuable enough to motivate miners. Mining technology is also expected to advance, eventually becoming small and inexpensive enough for everyday computing devices.
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