The Next Bitcoin Halving: 10,000 Blocks Remaining
- Chris Colston
- Feb 12, 2024
- 7 min read
Every four years, certain events recur globally. For instance, the World Cups in Football and Rugby, as well as the Olympic Games, are held every four years. Beyond sports, significant political transitions occur, such as the U.S. Presidential election, with each term lasting four years. This duration might seem arbitrary, but there seems to be a consensus that it provides ample time for preparation, stability, and growth before the next cycle begins.
Perhaps this is why Satoshi Nakamoto designed Bitcoin in this manner—for a sense of familiarity and continuity. In this blog, I will discuss the Bitcoin halving: its definition, significance, and why it is highly esteemed within the Bitcoin community. As we approach fewer than 10,000 blocks until the next halving, now is an opportune moment to delve into this topic.
What is a Bitcoin Halving?
The Bitcoin protocol includes a significant event that takes place approximately every four years or, to be more precise, every 210,000 blocks. This event, known as the Bitcoin halving, involves the halving of the block subsidy—the reward miners receive for their efforts in creating new Bitcoin blocks. This mechanism was embedded in Bitcoin's code from its inception and has seen three previous halving's.
In 2012, the block reward was halved from 50 Bitcoin to 25. The reward was further reduced to 12.5 Bitcoin in 2016, and most recently, nearly four years ago, the block subsidy decreased from 12.5 to 6.25 Bitcoin.
Come April, the Bitcoin block reward, issued to miners for their computational power used in generating new Bitcoin blocks, will be halved once more, bringing the new reward down to 3.125 Bitcoin. The exact timing of this event is uncertain, as the halving is determined by block height rather than strictly by the passage of four years.
However, as we approach the Bitcoin halving, we gain a better estimate of when the event will take place. This is because Bitcoin blocks are mined approximately every 10 minutes. Block times can vary; they can be quicker or slower than expected. To maintain balance and adherence to the schedule, the system includes a mechanism known as the 'difficulty adjustment.'
This ingenious piece of code, devised by Satoshi Nakamoto, ensures that on average, a block is mined every 10 minutes. Every 2,016 blocks, which equates to roughly every two weeks, the mining difficulty is adjusted either up or down, depending on the pace at which the previous 2,016 blocks were mined. This system is quite remarkable in its ability to ensure that Bitcoin blocks are produced as intended, keeping pace with the progression towards the next halving.
Bitcoin is Perfectly Programmed
There's been a considerable amount of information provided so far. Understanding this fully takes time, and despite my years of studying Bitcoin, I'm still uncovering the depths of the Bitcoin rabbit hole. The critical insight to grasp, which you might have started to understand, is that Bitcoin is an engineering masterpiece.
It's purely code, adhering to the precise protocol Satoshi Nakamoto laid out from the very first (Genesis) block. It doesn't change whimsically or adjust to favour particular interests over others. Information about its operation isn't obscured, leaving us uninformed about financial decisions that could affect our purchasing power. Bitcoin operates on a rule-based system, devoid of a singular, dominating authority. This principle is fundamental.
The Significance of a Bitcoin Halving
I've already mentioned that a Bitcoin halving is a seismic event, but why is it so significant? It might seem like just another event where things proceed as usual, yet the impact on Bitcoin's price suggests otherwise.
Consider what actually occurs during a Bitcoin halving: the reward for mining, which is in Bitcoin, gets halved every four years. Remember, Bitcoin has a capped supply of 21 million coins, which will be issued over an estimated span of approximately 150 years. The halving underscores Bitcoin's scarcity.
It's crucial to distinguish the nature of Bitcoin's scarcity at each halving. Bitcoin doesn't become scarcer because of the halving since we already know the total number of Bitcoin that will ever exist, thanks to its immutable, open-source design as outlined in the whitepaper.
Knowing that there will only ever be 21 million Bitcoin, halving the mining reward simply emphasises that Bitcoin's issuance will continue to decrease over time.
In Bitcoin's early days, individuals could mine Bitcoin on their laptops, receiving 50 Bitcoin as a reward for their computational efforts. Considering each Bitcoin is valued at approximately $48,000 today, mining a single block back then could potentially equate to a staggering £2,400,000 in today's value. However, at the time, a single Bitcoin was worth only pennies, which meant the mining incentive was minimal, leading to many Bitcoin being lost as small amounts seemed inconsequential.
Back then, Bitcoin's primary uses were for illicit activities and internet transactions, lacking the serious financial consideration it commands today. Now, with the block reward at 6.25, it's deemed extremely lucrative within the Bitcoin mining industry, essential for sustaining these businesses. As Bitcoin's value increases over time and its issuance rate diminishes, each Bitcoin becomes increasingly valuable and sought after.
Satoshi's Intentional Design
Bitcoin has ascended from being labelled as illicit money to becoming a global long-term store of value within merely 15 years. This ascent is attributed to something known as "Metcalfe's Law," which pertains to the effects of a network's growth: as the network expands, so does its value.
A common critique of Bitcoin is its supposed lack of intrinsic value due to its intangibility. This critique would hold if Bitcoin were not widely utilised. If Bitcoin weren't regarded as a viable long-term store of value and seen as worthless, its value would indeed decline. Overcoming this perception is a significant hurdle for any nascent entity, be it a product, design, or application; early adoption and success are crucial for long-term viability.
Satoshi Nakamoto was acutely aware of this challenge and thus deliberately designed Bitcoin's block rewards and halving events to expedite the application of Metcalfe's Law. Presently, over 90% of all Bitcoin that will ever exist has been mined, a staggering fact considering Bitcoin's relatively short existence of 15 years. This was a strategic move to foster adoption and incentivise early use of the Bitcoin network.
Early adopters saw their investments grow from pennies to significant sums, reaping substantial benefits for their early participation.
Contrary to accusations of being a Ponzi or pyramid scheme, Bitcoin is fundamentally different. It is open-source, allowing anyone to participate in the network at any time. There was no "pre-mine" to benefit early adopters at the expense of later ones, nor does Bitcoin offer yields akin to those found in Ponzi schemes, which are designed to perpetuate investment and promotion by offering returns.
Bitcoin simply existed, rewarding those who expended their time and computational power, much like traditional mining rewards gold discovery.
Satoshi's genius ensured that the bulk of Bitcoin was mined early on, creating a sense of urgency and driving network growth and enthusiasm. This approach is critical for any new venture seeking to establish itself and become desirable. Had Bitcoin's reward structure been static, with no diminishing supply, it's doubtful the demand and subsequent value increase seen in its early days would have occurred.
As a result, Bitcoin's adoption and perceived scarcity have surged, leading to greater demand than ever before, despite the diminishing rewards for mining. Currently, with 900 new Bitcoin entering circulation daily, the impending halving will reduce this to merely 450, emphasising Bitcoin's inherent scarcity and the increasing challenge of acquiring it. This meticulous design by Satoshi not only fostered Bitcoin's initial growth but continues to influence its perceived value and demand.
History's Echo in Bitcoin's Price
Bitcoin's pricing pattern has shown a remarkable consistency, known for its volatility and significant fluctuations. These fluctuations seem to closely align with the timing of Bitcoin halving's. Typically, 6-9 months post-halving, Bitcoin's price surges to unprecedented heights, only to be followed by a substantial correction, a period of accumulation, and then the cycle repeats.
Whether this pattern is driven by psychology or other factors, its impact is undeniably evident. It might stem from the collective realisation that Bitcoin's supply has been further constrained, amplifying the difficulty of acquiring more Bitcoin and, consequently, its value.
Is Bitcoin's Price Set to Rise?
The certainties of life extend to death, taxes, and the existence of only 21 million Bitcoin. Beyond these, the future remains a realm of speculation and debate. The halving phenomenon introduces a unique demand-supply shock, unparalleled by any other asset due to Bitcoin's absolute scarcity—a trait not mirrored by any other commodity, with gold being the closest comparison.
However, the total amount of gold available on Earth or even across the universe remains uncertain, making it not truly scarce. When gold's price escalates, the incentive to mine more intensifies, preventing a shock to its supply that Bitcoin experiences. As Bitcoin's price climbs, spurred by increased demand, the immutable fact remains: no additional Bitcoin can be mined, and over time, even less will be available. This inherent scarcity precipitates dramatic supply shocks following each halving, leading to significant asset repricing.
The Bitcoin Halving Creates Urgency
The Bitcoin halving acts as a ticking time bomb, affecting retail buyers, institutions, and especially Bitcoin miners. Miners depend on block subsidies for their income, and the halving slashes their revenues by half. Should the price double, their earnings would return to pre-halving levels, prompting miners to innovate and operate more efficiently to sustain their rewards from mining Bitcoin.
This event also instills urgency among buyers. It's estimated that 4-5 million Bitcoin are permanently lost due to mismanaged wallets or forgotten private keys. Notably, Satoshi Nakamoto's wallet, containing one million Bitcoin, remains untouched.
With 19 million Bitcoin already mined, only two million remain for future mining over the next century. Presently, just two million Bitcoin are available on exchanges for purchase. Considering the fixed cap of 21 million Bitcoin, the effective circulating supply is closer to ~15 million, highlighting the profound scarcity of Bitcoin.
The Halving is Near
With each successive halving, its impact appears to diminish gradually. Bitcoin's price has surged exponentially, yet the magnitude of each cycle's increase has lessened. This trend is anticipated for an asset that escalated from zero to a market capitalisation surpassing a trillion dollars.
Moreover, volatility on the downside has lessened, indicating the asset's maturation. The Bitcoin halving, a pivotal event, is set to recur every four years, like clockwork. By approximately the year 2140, the last Bitcoin will be mined, leaving only the existing supply for purchase and sale. The future value of a Satoshi (one hundred millionth of a Bitcoin), let alone a single Bitcoin, is up for discussion.
Should Bitcoin continue its trajectory of adoption, maintain its use case globally, and preserve its decentralised and fixed supply nature, its value could be boundless. Stay tuned for further debate of this possibility.
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