- Bitcoin halving will see the reward for miners decrease by 50% per block mined, from ₿12.5 to ₿6.25
- Mining farms have been preparing for over a year, with the less efficient ones potentially going bust
- This year’s halving highlights Bitcoin’s deflationary nature at a time when governments are printing money by the billion
The crypto world is abuzz about the Bitcoin halving, but not every knows what it is or what’s so special about it. Our introductory guide explains exactly what the Bitcoin halving is, why it matters, and what you need to do to prepare for it.
What is the Bitcoin Halving?
The Bitcoin halving reduces by half the amount of bitcoin that miners are rewarded for mining a block on the Bitcoin blockchain. The reward is currently ₿12.5 per block – after the halving this will be reduced to ₿6.25 (approximately $56,000 at today’s prices).
When is the Bitcoin Halving?
No one knows exactly. The halving event happens once every 210,000 blocks (roughly every four years) but the actual date is complicated by changes to Bitcoin’s difficulty level, which is constantly changing.
The current anticipated date is May 12, 2020, although this may change closer to the date.
Who Does the Bitcoin Halving Impact?
The Bitcoin halving will have the biggest impact on miners who use older, less efficient mining equipment. This is because the financial reward for mining Bitcoin has been cut in half yet the costs of mining Bitcoin remain the same. Less efficient mining machines will therefore be running at a loss, with the cost of operating them being more than they earn.
Some miners will therefore go out of business as they can’t afford to keep operating – it’s the same as if your salary were cut in half but you were expected to do the same amount of work with the same associated costs. Argo Blockchain CEO Peter Wall expects a 10-30% drop in hash rate after the halving until the remaining miners pick up the slack.
The Bitcoin halving only impacts miners – it has no effect on Bitcoin exchanges or holders.
Why is the Bitcoin Halving Important?
The Bitcoin halving is key to the deflationary aspect of Bitcoin’s design. It ensures that the rate at which new bitcoin enters the system is reduced as time goes by, meaning that no single entity can suddenly mine thousands, flood the market and crash the price.
Bitcoin was created as a hedge to the fiat currency model, where governments can print money at will, which eventually reduces the value of each unit of currency and can lead to hyperinflation. No one can control the issuance of Bitcoin – the strict supply control is purely mathematical and is baked into the network:
Source: Bitcoinblockhalf.com
This can be compared to precious metals such as silver and gold – if a huge new resource was discovered and tapped, the sudden flood into the market would crash the price. With Bitcoin, there can never be more than 21 million mined, with fewer and fewer introduced into the ecosystem every 210,000 blocks.
Will the Bitcoin Halving Affect the Bitcoin Price?
No, at least not directly. The fact that the mining reward goes down does not suddenly make Bitcoin more valuable, although history has shown that Bitcoin does tend to enjoy a rally in the year after the halving. This is not specifically related to the halving however, and is certainly not a result of it.
Source: Bitcoinblockhalf.com
Do I Need to Prepare for the Bitcoin Halving?
Unless you plan to hold a (virtual) party to celebrate it or you operate a Bitcoin mining farm, no. There’s nothing the average person needs to do with regard to their Bitcoin, and if you’re running a mining farm and only reading about the halving for the first time here then you really shouldn’t be in the business anyway.
Most mining farms have been preparing for the 2020 halving for at least the last year, if not longer, trying to maximize their machines’ output and minimize running costs.
Backdrop to 2020 Halving Illuminates Bitcoin’s Properties
The Bitcoin halving is a chance for Bitcoin supporters to celebrate one of the key tenets of Satoshi’s design for the currency. The fact that this year’s halving comes against the backdrop of a promise of “unlimited funds” from the Federal Reserve to help the government out of a coronavirus-shaped hole illuminates Bitcoin’s fundamentals, and the importance of the halving, more than any year since that of Bitcoin’s founding.
