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Early next week, bitcoin will go through a process known as the halving (or halvening, if you’re fancy). It’s an epochal event in cryptocurrency circles that cuts new bitcoin creation by 50%.
For the uninitiated nocoiners
Bitcoin miners earn new tokens by completing complex cryptographic math problems. After a halving event, they receive fewer bitcoins in reward for helping create new blocks. Currently, when miners produce a new block, they receive 12.5 BTC. After the halving, they’ll receive 6.25 BTC.
The backdrop: In 2009, mining rewards started at 50 BTC. The first halving brought rewards down to 25 BTC on Nov. 28, 2012, when bitcoin’s price was near $13. The second took place on July 9, 2016, when bitcoin was around $660.
- The calibration occurs every 210,000 blocks. Don’t hold your breath for the last halving, which will take place well after 2100.
True to BTC form, there isn’t a central authority pulling a lever to initiate the halving. The process was put into motion when Satoshi Nakamoto, bitcoin’s pseudonymous creator, released the protocol in 2009.
What’s the point?
As opposed to fiat currencies, whose supply governments can increase by making money printers go brrr, bitcoin was designed to be deflationary. Halvings help control the rate of inflation so bitcoins don’t lose their purchasing power over time.
Bitcoin’s total supply is capped at a fixed 21 million, making bitcoin somewhat like gold—there’s only so much you can mine.
Looking forward
Cryptocurrency enthusiasts, traders, and analysts debate whether the halving is already “priced in.” Prior halvings don’t really provide the answer: Bitcoin was a lesser-known asset and adoption was much lower than it is today. You can see how awareness has surged with “bitcoin halving” Google search history.
Regardless of what happens with bitcoin’s price, the halving will likely wipe out smaller miners whose operations become unprofitable. Larger mining farms, which pool processing power and can achieve economies of scale, are better equipped to stay online.