Bitcoin Halving is a mechanism implemented by Satoshi Nakamoto, the Founder of Bitcoin itself, which was done to give Bitcoin a scarcity value that would make it non-inflationary, thus increasing its value overtime.
It was created to combat the mechanism of regular fiat money so that users of Bitcoin are not victimized by the depreciating value of money overtime, making their money safe and stable, even increasing overtime.
Although it has been a commonly known mechanism, few still realize how intricate the mechanism is. In this article we are going to talk about how Bitcoin halving works in a more detailed matter with some data.
Mechanisms of Bitcoin Halving
Bitcoin halving is a mechanism that “halves” miner’s rewards per block every four years or 210,000 blocks.
“Halves” in this context means reducing miner’s rewards by half over time, meaning they get less and less reward for mining Bitcoin.
Mining, in the Bitcoin world, refers to the mechanism where the validators of the network, which are called miners, validates transactions and stores it into blocks.
Miners validates every transaction on the network with a Proof of Work consensus mechanism, to make sure that the blockchain is safe, not to store any faulty data that might harm the network, and make sure that the blockchain is always running.
Read more: When Was the Last Bitcoin Halving? Understanding This Key Event and Its Impact
By validating transactions and creating blocks also known as mining, miners are rewarded with Bitcoins per block, also known as block rewards.
What are Block Rewards?
Note that Block rewards are different from transaction fees on the Bitcoin blockchain. Block rewards are locked supplies of Bitcoin that are being unlocked to the market every 10 minutes for every block created.
Transaction fees are fees generated by every transaction that happens on the Bitcoin blockchain that is also received by Bitcoin miners on top of the Block rewards.
Block rewards are similar to locked tokens that have a vesting period in other cryptocurrencies. But, unlike others, the vesting period of Bitcoin is done through halving, hence making it less and less over time until there is no more to give out, which is where every supply of Bitcoin is circulating in the market.
While Block rewards have a fixed supply that changes through halvings, transaction fees differ according to the transactions that happen in the network.
Block Rewards after Bitcoin Halving
Before the first halving, miners are rewarded with 50 BTC for every block created, hence calling it block rewards.
After the first halving, the reward itself is cut down by half, so after the first halving, block rewards are cut down to half of 50 BTC which is 25 BTC.
Right now, the current block reward for every block created stands at 6.25 BTC which is a result of three halvings, which happened in 2012, 2016, and 2020.
Current Block Rewards
According to data from BitInfoCharts the current time it takes to create one block is 8 minutes and 37 seconds, which means for every 8 minutes and 37 seconds there are 6.25 BTC received by the miners for creating a block.
On top of that, miners also received fees from transactions on that created block, whereas right now, the comparison between Block rewards and transaction fees are 2,32%, meaning the amount of transaction fees received by miners is 2,32% of block rewards.
According to the data above, the current transaction fees for every block reward are 0.1466 BTC per every 6.25 BTC, which means that for every block, there is a reward of 6.25 BTC and 0.1466 BTC that will be split amongst miners that created that block.
Bitcoin Halving Countdown
With halving, that reward will go down over time, decreasing the amount of Bitcoin going into the market, making it more scarce and increasing the price overtime.
The next Bitcoin halving is predicted to happen around April 2024, or precisely at block 840,000 where Block rewards will go down to 3.25 BTC per every block created.
Looking at the data above, Bitcoin is currently at block 832,084 which means there are 7,916 blocks left before the next halving occurs.
The predicted time for the next halving can be calculated by 7,196 times 8 to 10 minutes or the average Bitcoin block creation time.
From that calculation it can be predicted that the halving will happen at around 44 to 55 days depending on the stability of Bitcoin’s block creation time.
Predicting the Last Bitcoin Halving
The last halving itself is predicted to happen in the year 2140, where after that there will be no more halving.
When that happens miners will act as regular validators and will only be rewarded with a percentage of transaction fees without the fixed subsidy that was determined by the Bitcoin halving mechanism when Bitcoin halving still occurs.
So when there is no more Bitcoin halving, miners will only receive around 0.1 to 0.05 BTC per block created, depending on the updates that the community does to Bitcoin’s blockchain transaction fees.
Conclusion
In conclusion, Bitcoin halving is a mechanism where the Bitcoin Blockchain halves its rewards to miners, essentially making Bitcoin more scarce in the market.
Bitcoin halving happens every 210,000 blocks, or approximately every four years until the last Bitcoin is mined.
So until then, miners will receive subsidies from the blockchain as it’s way to increase the circulating supply of Bitcoin but will be cut in half every four years until it reaches 21 Million BTC in the market.
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