To understand this, you’ll first have to understand how Bitcoin works. The Bitcoin network processes transactions on the blockchain. In order to verify the transaction, there are Bitcoin miners that supply computing power combined with software. This computing power is then used to solve complex math equations, and you are then rewarded with Bitcoin for solving the problem that verifies a transaction.
Back to the halving. There is an finite amount of Bitcoin that will ever be mined/produced–21 million coins. The more time that passes, it becomes harder to solve the equations, there is a need for more computing power, and the amount of Bitcoin mined decreases. The amount of Bitcoin that gets added to circulation is pre-determined, so there is a known inflation rate until it gets to the max of 21 million. The halving reduces the amount of rewards that miners are compensated with for solving the equations, aka verifying transactions. Roughly every 4 years, a halving occurs, reducing the rewards by half. The next halving is estimated to occur on April 16, 2024, and will reduce the miner rewards to 3.125 Bitcoins per block.
Why is this important?
Bitcoin is a verifiably scarce digital asset. There is a know limited supply with a hard cap at 21 million. There can’t ever be any more than that, unlike traditional fiat currencies where governments can print as much as they want. Traditionally, the value of fiat currency decreases over time due to inflation and the printing of more dollars, causing you to spend more of it to purchase items. The same can’t be said for Bitcoin, which has increased in value and requires you to spend less of it on items.
With every halving, the inflation rate of Bitcoin halves, and this has typically meant an increase in value compared to traditional currencies for many reasons, but one of the most important is the simple fact of less supply being put into circulation versus the demand for Bitcoin.
What is the halving schedule?
A halving occurs after the mining of every 210,000 blocks.
The first halving was November 28, 2012 where the reward went from 50 BTC per block, to 25 BTC.
The second halving was July 9, 2016 where the reward was reduced to 12.5 BTC.
The third halving was May 11, 2020 where the reward was reduced to 6.25 BTC.
The fourth halving is approximately 40 days away, set to occur in the middle of April 2024 and reduce rewards to 3.125 BTC.
The future halvings are expected in 2028 and 2032, reducing the rewards by half again each time.
When will all 21 million Bitcoin be mined?
While 98% of the total supply will be mined by 2032, it will take until about year 2140 for all Bitcoin to be mined at the current schedule.
