BTC halved for the fourth time. How does it affect the supply of BTC?

TL;DR

- Bitcoin halving occurs after 210, 000 blocks have been successfully mined or added to the blockchain.

- This is a method adopted to make Bitcoin non-inflationary; the mining reward is reduced by 50%.

- The next Bitcoin halving is the fourth in Bitcoin history and it will reduce mining rewards from 6.25 to 3.125 Bitcoins per block.

- According to coinmarketcap, the next Bitcoin halving is expected to occur in March 2024.

Overview of Bitcoin halving

The Bitcoin halving is a known and anticipated event in the crypto industry that happens approximately between four-year intervals.
Unlike traditional currency, Bitcoin is mined out of a finite supply. So when Bitcoin is halved, the pace at which new coins enter circulation is cut in half.

By implication, Bitcoin halving results in the decrease of mining rewards and reduces new coin creation rate while demand keeps increasing.

It is part of the adopted methodology used to ensure a fixed supply of Bitcoin & constant reduction of the inflation rate.
The last Bitcoin halving occurred in May 2020, and the mining reward per block was halved to 6.25 Bitcoins, making it the third halving in Bitcoin history.

How does Bitcoin halving work?

Bitcoin halving was programmed, by its anonymous creator Satoshi Nakamoto, to counteract the inflation effect on Bitcoin.

The algorithm targets the halving of the mining reward for a block for every 210,000 blocks mined or added to the blockchain. At the time of writing, it takes approximately 4 years for this to happen.


Bitcoin’s decreasing supply algorithm.

Since mining Is the only way to bring new Bitcoin into supply, miners essentially race for the reward attached to mining new blocks to the blockchain.
It is important to note that only 1.9 million is yet to be mined out of the 21 million bitcoins total supply. It is estimated that this reward system would continue to 2140, where the mining rewards will ultimately approach zero.

The hypothesis behind the Bitcoin halving suggests that if the value of precious matter such as Gold increased based on their observed scarcity, Bitcoin halving is supposed to impact the value of Bitcoin positively.

Even though this process reduces miner reward, miners get incentivized because the value of Bitcoin is usually increased afterward.
Sometimes, when the demand & price of BTC stays the same after a halving event, the mining difficulty is reduced to incentivize the miners.

Historical landmarks for Bitcoin halving

Of the 32 estimated Bitcoin halving, only 3 have taken place, and here are the dates and the block reward impact.

- Before the first halving, the Bitcoin mining reward per block was 5O BTC.-2009- November 2012.

- The First halving drove the reward per block to 25 BTC, with a total of 10, 500,000 mined BTC. -November 2012- July 2016.

- The second halving arrived at 420,000 blocks and drove the reward per block to 12.5 BTC. July 2016- May 2020.

- The third halving took place at 630 000 blocks & drove the reward per block to 6.25 BTC, which is still valid to date.

- The fourth mining is projected to occur in 2024, and the mining reward is estimated at 3.125 BTC.

- The Bitcoin halving is supposed to terminate by 2140. It is expected that the block reward would have diminished to zero, and validators would be rewarded with user transaction fees.

How will the 4th Bitcoin Halving affect BTC supply?

Bitcoin halving is usually surrounded by hype and volatility. Hence the direction of the market can only be speculated.

However, historical data has shown that the event is successively characterized by a corresponding gradual or sharp increase in demand and price while considering other factors surrounding the period. The halving reduces the rate at which new coins are mined, hence lowering the supply of Bitcoin.

The 4th Bitcoin halving is scheduled to happen in march 2024 at block 840 000, and it will also lead to a reduction in the supply rate of Bitcoin.
As mentioned earlier, the event is always characterized by many speculations like “miners will leave,” price volatility, and a bull run. However, the positive effect of the halving may not be seen immediately but rather after several months.




Author:M. Olatunji, Gate.io Researcher
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