Bitcoin has built-in scarcity, and a definitive “full stop” by design. There will only ever be 21 million Bitcoin, and roughly 19.6 million have already been mined.
It is expected to take until 2140 to generate those last 1.4 million Bitcoin, because Bitcoin production slows down over time. This is part of a system designed to generate scarcity and increase Bitcoin’s value.
The slow-down is managed through a process called Bitcoin halving. It’s one of the key ways Bitcoin is unlike a traditional fiat currency, and is more of an investor’s asset than anything else.
What happens during a bitcoin halving?
After each production of 210,000 Bitcoin blocks, the number of Bitcoins granted per block is halved. While “Bitcoin mining” is common parlance, the Bitcoins are granted as a reward for establishing new blocks on the Bitcoin ledger, where the state of the currency is recorded.
Bitcoin mining involves lots of very complex but ultimately pointless calculations that create blocks on Bitcoin’s ledger. And each of these currently grants 6.25 Bitcoin, which will drop to 3.125BTC at the next halving.
Mining is a use of computer-processing power that has no end goal other than acting as a proof of work that tempers the growth of Bitcoin as a currency. Similarly, there’s no grand meaning to a “Bitcoin block” beyond the structure it provides this cryptocurrency.
As such, Bitcoin mining gets more expensive after a halving event. But such events may also increase the value of the cryptocurrency, by making it more scarce.
What date could Bitcoin halving be?
The next Bitcoin halving is expected to take place in April 2024. To date, there have been three halving events: in November 2012, July 2016, and May 2020.
Notice the pattern? Halvings tend to take place a little under every four years, meaning we are due one soon.
This raises another question, if you think about it for a moment. Each halving happens after 210,000 blocks are processed, each of which grants a number of Bitcoins.
But, given today’s computers are much more powerful than those of 2012, how come these halving don’t speed up? The computational demand of Bitcoin mining is also managed, to ensure that, while Bitcoin’s value may be unstable, the rate at which Bitcoin is produced globally is roughly predictable and consistent.
What does halving do to price?
A graph of Bitcoin’s value over the years has some very dramatic peaks and troughs. You might expect some of these to be around the time halving happen, but they are not.
Spikes are often caused by squishier things, like Elon Musk banging on about Bitcoin and it causing a surge in wider interest. Or governments lending credibility to the cryptocurrency, such as when El Salvador instated a law that made Bitcoin legal tender in June 2021.
Drops are more likely to be caused by governments clamping down on crypto, or wider economic conditions that make risky investments like crypto seem less appealing.
In theory, a halving should send Bitcoin value on an upward trajectory, by making it more scarce. However, this effect has historically been less dramatic than you might assume, perhaps in part thanks to the aforementioned dynamic nature of the computational demand of Bitcoin mining.
Halvings are also predictable and expected, meaning they are less likely to have all that much effect on the all-important “sentiment” towards Bitcoin. As years following crypto will show, the value of these intangible assets is firmly linked to how much people think they are, or could be, worth.