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Everything You Need to Know About Bitcoin’s 2020 Halving
Many people in the crypto world bring up the bitcoin halving like it’s the industry’s saving grace after the several market swoons of the past months. But what does actually happen? Let Binance Academy guide you on the basics.
Before we get started if you’re not sure what bitcoin is, check out Binance Academy’s guide “What Is Bitcoin?”
One of the most anticipated developments in the cryptocurrency space for 2020 is bitcoin halving . This event, expected to occur in May 2020, will result in the 50% reduction of the block subsidy being given to Bitcoin miners.
At face value, bitcoin halving seems like bad news for miners. However, many people who closely follow crypto say this phenomenon is as a catalyst for major, positive price action for Bitcoin and altcoins in the future.
If you find yourself asking why that’s the case, Binance Academy has prepared this short FAQ to help you understand what’s going on.
How did Bitcoin halving begin?
When Bitcoin was created in 2008, those who participated in its decentralized network are able to earn 50 BTC for each block they validate cryptographically, in a process more commonly known as mining . Through this method, there were 10.5 million BTC generated within a span of four years.
But Bitcoin is created to have a maximum supply of 21 million BTC. If the pace of creating BTC was retained as is above, all 21 million BTC will have been created within less than a decade. To ensure that this doesn’t happen, the rate of creating BTC was set to be reduced by 50% every 210,000 blocks created. This is what happens with bitcoin mining.
What happened during the past Bitcoin halving events?
The first bitcoin halving event happened on November 28, 2020. That day, the first 210,000 blocks were created, so it triggered the code that reduced the block reward from 50 BTC to 25 BTC. This meant that for the next 210,000 blocks being created, just 5.25 million BTC will be generated.
Bitcoin halving happened again on July 9, 2020, when the block height of the Bitcoin blockchain reached 420,000 blocks. The block reward was then decreased from 25 BTC to 12.5 BTC. Between 2020 and 2020, 2.625 million BTC are expected to be created.
When will the next Bitcoin halving happen?
According to Binance Academy’s Bitcoin halving countdown, the next Bitcoin halving event is expected to occur by May 6, 2020 . However, please be aware that the estimate may change from time to time. This is because Binance Academy uses sophisticated calculations and live blockchain statistics to estimate average block times and other factors that affect the timing of the next halving event.
There are several websites that offer different estimates on when the next having event for Bitcoin will happen. However, most of these websites rely on commonly-quoted average block times for Bitcoin, without the nuance that Binance Academy provides.
What can we expect for this year’s bitcoin halving?
When the block height of BTC reaches 630,000, the block reward will then decrease from 12.5 BTC to 6.25 BTC. By then, 18,375,000 BTC is already in circulation, out of the maximum 21 million. However, between 2020 and 2024 (the next expected bitcoin halving year), only 1,312,500 BTC will be created.
Why is Bitcoin halving a big deal?
At the most basic level, Bitcoin halving affects miners, whose rewards will be reduced by half. It will take roughly the same amount of effort to earn 50% less than what they received before the halving. However, there are other factors at play, such as Bitcoin’s scarcity and its underlying impact on the crypto’s value, market forces that influence Bitcoin’s price, and several other external events.
Many people in the crypto community believe that Bitcoin halving can trigger a significant upswing in Bitcoin prices. They cited previous price upswings that happened a year after halving, such as the one-year rise in BTC value from $11 to $1,100 after the first halving, or the second halving’s record of growth from $600 to $20,000 within 18 months.
However, other people have said that the Bitcoin halving event of 2020 can’t be compared to the previous halving events, due to several factors, such as increasing market maturity and better halving anticipation in the crypto community, as well as the possibility that the impact of halving is already priced into the current BTC prices.
Whatever the future holds for BTC value, people will see Bitcoin halving as an inflection point.
What’s the best way to track future developments in Bitcoin halving?
As a leading educational hub for all things crypto, Binance Academy is a one-stop-shop for everything you need to know about Bitcoin halving and other terms that relate to Bitcoin. Its comprehensive Bitcoin halving countdown gives you everything you know about Bitcoin halving, from the process to the expected date and time for the actual halving.
You can also look into this report by Binance Research for some insights on halving scenarios of Litecoin , an altcoin that spun off from Bitcoin.
Bitcoin Halving, Explained
Bitcoin Halving, Explained
The Bitcoin halving will take place sometime in May 2020. What is the halving, how will it affect the price, and what does it mean for miners and the cryptocurrency’s long-term prospects? Here’s everything you need to know.
“The halvening” sounds like a horror movie about an ax murderer. But it’s actually the nickname for one of the most hotly anticipated events in Bitcoin’s history.
Sometime in May, the number of bitcoins (BTC) entering circulation every 10 minutes (known as block rewards) will drop by half, to 6.25 from 12.5. It’s a milestone that’s easy to see coming because it happens every four years and has happened twice before.
The allure of possible riches is what’s drawing so much attention to the upcoming event, which is more commonly referred to as the halving (some wags like to add the “en” to make it sound ominous). The amount of supply entering the system will suddenly shrink, but the demand will, in theory, stay the same, possibly driving up the cryptocurrency’s price. As such, the event has inspired passionate debate about bitcoin price predictions and how the market will respond.
“The theory is that there will be less bitcoin available to buy if miners have less to sell,” said Michael Dubrovsky, co-founder of mining R&D nonprofit PoWx.
But the periodic decline in Bitcoin’s minting rate could have a deeper significance than any near-term price movements for the functioning of the currency. The block reward is an important component of Bitcoin, one that ensures the security of this leaderless system. As the rewards dwindle to zero in the decades ahead, it could potentially destabilize the economic incentives underlying bitcoin’s security.
For those trying to make sense of this complex topic, CoinDesk offers the following explainer of Bitcoin’s third halving.
What is the halving?
New bitcoins enter circulation as block rewards, produced by “miners” who use expensive electronic equipment to earn or “mine” them.
Every 210,000 blocks, or roughly every four years, the total number of bitcoin that miners can potentially win is halved.
Bitcoin supply and subsidy. Source: CoinDesk Research
In 2009, the system started at 50 coins mined every 10 minutes. Two halvings later, 12.5 bitcoins are currently being dispensed every 10 minutes.
This process will end with a total of 21 million coins, probably in the year 2140.
Who chose the Bitcoin distribution schedule? Why?
Bitcoin’s pseudonymous creator, Satoshi Nakamoto, who may have been an individual or a team, disappeared roughly a year after releasing the software into the world. So, he or she or they (we’ll just go with “they” from now on) are no longer around to explain why they chose this specific formula for adding new bitcoin into circulation.
But early emails written by Nakamoto shed some light on the mysterious figure’s thinking.
Shortly after releasing the Bitcoin white paper, Nakamoto summarized the various ways their chosen monetary policy (the schedule by which miners receive block rewards) could play out, pondering the circumstances under which it could lead to deflation (when a currency’s purchasing power increases) or inflation (when the prices of goods and services purchasable with a currency increase).
At the time, Nakamoto couldn’t have known how many people would use the new online money (if anyone).
They elaborated very little on why they chose the particular formula they did: “Coins have to get initially distributed somehow, and a constant rate seems like the best formula.”
In most state-issued currencies a central bank, such as the U.S. Federal Reserve, has tools at its disposal that enable it to add or remove dollars from circulation. If the economy is floundering, for instance, the Fed can increase circulation and encourage lending by purchasing securities from banks. Alternately, if the Fed wants to remove dollars from the economy, it can sell securities from its account.
At the time, Nakamoto couldn’t have known how many people would use the new online money (if anyone).
For better or worse, bitcoin is a bit different. For one, the supply schedule is all but set in stone.
Unlike the monetary policy of state-issued currencies, which unfold through political processes and human institutions, Bitcoin’s monetary policy is written into code shared across the network. Changing it would require an immense output of coordination and agreement across the community of Bitcoin users.
“Unlike most national currencies we’re familiar with like dollars or euros, bitcoin was designed with a fixed supply and predictable inflation schedule. There will only ever be 21 million bitcoins. This predetermined number makes them scarce, and it’s this scarcity alongside their utility that largely influences their market value,” crypto wallet company Blockchain.com wrote in a blog post ahead of the 2020 halving.
Another unique aspect of Bitcoin is Nakamoto programmed the block reward to decrease over time. This is another way in which it differs from the norm for modern financial systems, where central banks control the money supply. In stark contrast to Bitcoin’s halving block reward, the supply of the dollar has roughly tripled since 2000.
Nakamoto left clues that they created Bitcoin for political reasons. The first Bitcoin block features the headline of a newspaper article: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Many have come to interpret it as a sign of Nakamoto’s political beliefs and goals. If widely adopted, Bitcoin could potentially reduce the power banks and governments have over monetary policy, including bailouts of struggling institutions. As shown with the block reward, no central entity can create bitcoin outside of the strict schedule.
How does the halving influence bitcoin’s price?
The halving is grabbing so much attention mostly because many believe it will lead to a price increase. The truth is, no one knows what’s going to happen.
Bitcoin has seen two halvings so far, which we can look to as precedent.
Bitcoin’s halving timeline. Source: CoinDesk Research
The 2020 halving provided the first demonstration of how markets would respond to Nakamoto’s unorthodox supply schedule. Until then, the Bitcoin community didn’t know how a sudden decline in rewards would affect the network. As it turned out, the price began to rise shortly after the halving.
The second halving in 2020 was highly anticipated, as is the one now approaching, with CoinDesk running a live blog of the event and Blockchain.com putting out a “countdown.” Each halving has encouraged vigorous speculation about how the event would affect bitcoin’s price.
On July 16, 2020, the day of the second halving, the price dropped by 10 percent to $610, but then shot back up to where it was before. There was little evidence the sudden reduction in bitcoin’s minting rate had a long-term impact on the price. At the time, CoinDesk’s Jacob Donnelly went so far as to call the event a “boring vindication.”
While the immediate impact on the price of bitcoin was small, the market did tally a gradual increase over the year following the second halving. Some argue this increase was a delayed result of the halving. The theory is that when the supply of bitcoin declines, the demand for bitcoin will stay the same, pushing the price up. If that theory is correct, then we could observe similar price increases after future halvings, including the one scheduled for this year.
Others argue that given the predictability of bitcoin’s halving schedule, this change in the minting rate is unlikely to shift the price. Traders have long known the bitcoin block reward will decrease, giving them ample time to prepare.
It’s possible that if enough people know about the halving in advance, they will buy bitcoin in anticipation, pushing the price up before the halving instead of after. This is what people mean when they argue the halving is “priced in.”
Explore these other stories on Bitcoin Halving 2020:
Why do miners get these rewards?
Bitcoin wouldn’t work at all without these block rewards.
As pseudonymous independent researcher Hasu put it, there are two parts to making Bitcoin work. “Bitcoin’s ledger state should answer the question of ‘who owns what, when?’” Hasu told CoinDesk.
The first part, “who owns what?” is solved by cryptography. Only the owner of a private key (which is like a secret access code) can spend the bitcoin.
The game theory that secures Bitcoin requires that a) miners have an incentive to mine honest blocks [and] b) miners have a cost . to attempting dishonesty.
“The second half (‘when?’) is the big challenge and was unsolved before Bitcoin,” Hasu explained. Otherwise, it’s easy for people to “double-spend” their coins, effectively creating money from thin air.
Without the block rewards, the network would be in chaos. Hasu explains that if they have enough computing power, miners can attack the network in two ways: By double-spending coins or by stopping transactions from going through. But they are strongly incentivized not to try either, because then they would risk losing their block rewards.
“The game theory that secures Bitcoin requires that a) miners have an incentive to mine honest blocks [and] b) miners have a cost . to attempting dishonesty,” Dubrovsky said.
In other words, miners will lose money if they don’t follow the rules.
The more computing power miners direct towards Bitcoin, the harder it is to attack because an attacker would need to have a significant portion of this processing power, known as the hashrate, to execute such an attack.
The more money they can earn by way of block rewards, the more mining power goes to Bitcoin, and thus the more protected the network is.
What happens when block rewards get very small or taper off entirely?
That is why the periodic decrease in rewards might eventually become an issue.
Miners need an incentive to do what they do. They need to get paid. They’re not running these expensive, electricity-guzzling computers for their health after all.
But the consequence of this dropping block reward is that eventually, it will dwindle to nothing. Transaction fees, which users pay each time they send a transaction, are the other way miners earn money. (Theoretically, these fees are optional, although as a practical matter a transaction without one might have to wait a long time to be processed if the network is congested; the size of the fee is set by the user or their wallet software.) The fees are expected to become a more important source of remuneration for miners as the block reward falls.
“In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes. I’m sure that in 20 years there will either be very large transaction volume or no volume,” Nakamoto wrote.
But for a long time, Bitcoin researchers have been considering the possibility transaction fees won’t suffice. For one thing, it means transactions might need to grow more expensive over time to keep the network as secure.
It’s impossible to predict what will happen, but if we want a system that could last 100 years, we should be ready for the worst case.
“This cannot really work without very expensive transaction costs because Bitcoin cannot process huge quantities of transactions on-chain,” Dubrovsky said.
And, as discussed above, it is mining rewards that draw more computing power to Bitcoin, hardening it against attacks that try to circumvent the network’s rules. It’s unclear whether a future attenuated block reward will have the same allure for miners, even when supplemented with fees.
“I don’t think this halving will make Bitcoin significantly less secure, but in eight to 12 years we could find ourselves in hot water,” Hasu said.
Part of the problem is that more than a decade after Bitcoin’s birth the market is still figuring out the true cost of protecting the network from attackers.
“Nobody knows the correct level of security needed to keep Bitcoin safe. Currently, Bitcoin pays out something like $5 billion per year and there are no successful attacks; however, there has been no price discovery. Bitcoin may be overpaying. To really find out the minimum level of security needed to avoid attacks, the mining rewards would need to be dropped to the point where attacks start happening and then increased until the attacks stop,” Dubrovsky argued.
“Of course, this would be catastrophic for Bitcoin as it’s designed now, but it could really come to some kind of scenario like this if rewards dwindle and the Bitcoin community doesn’t do anything about it,” he added.
Hasu said he “hopes” transaction fees will be enough to incentivize the security of Bitcoin in the end, but he thinks it’s worth anticipating the “worst case.”
“It should be clear that the incentive to attack Bitcoin today is larger than it was five years ago. We now have [U.S. President Donald] Trump, [China President Xi Jinping] and other world leaders talking critically about it. The more Bitcoin grows, the more they might see it as a threat and might eventually feel forced to react. That would be the worst case, anyway,” Hasu said.
This question is an interesting one to ponder when thinking about Bitcoin’s future prospects, though it might sound like a far-off matter in 2020.
“It’s impossible to predict what will happen, but if we want a system that could last 100 years, we should be ready for the worst case,” Hasu said. “The worst case is demand for blockspace does not increase in the dramatic fashion that would be needed. As a result, block rewards would eventually trend toward zero.”
Bitcoin Halving Research Report
Want more depth and data on how to invest against the halving? CoinDesk Research has released Bitcoin: The Halving and Why It Matters, a research paper for investors. Download the report for free and sign up for the weekly investor newsletter, Institutional Crypto.
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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.
Bitcoin Halving 2020: 7 Halving Facts You Need to Know
Last Updated on January 31, 2020
The Bitcoin Halving is an event that occurs every four years (210,000 mined Bitcoin blocks) and reduces the amount of BTC mined per block from 12.5 BTC to 6.25 BTC.
This reward halving was hardcoded by Satoshi Nakamoto into the Bitcoin protocol in order to enforce the currencies deflationary monetary policy.
Many argue that Bitcoin’s reward halving is one of the “Killer Applications” of BTC.
The reasoning for the statement is simple: the periodic halving has enabled Bitcoin to become the first form of money in history which total supply is known at all times, and where inflation is controlled by nothing more than an algorithm.
In this article we will be covering 7 facts that you need to know about the 2020 Bitcoin halving, let’s dive right into it.
2020 Bitcoin halving facts
When is the 2020 Bitcoin halving?
The Bitcoin halving 2020 is expected to happen at the end of May 2020.
However, keep in mind that the date of Bitcoin’s reward reduction is not decided by the normal calendar, but by the number of blocks that have been mined. It will happen as soon as 210,000 blocks have been mined after the reward reduction in 2020.
If difficulty drops a few times then the halving may happen a few weeks later.
Which Bitcoin halving is this?
The Bitcoin halving in May 2020 will be the third reward halving that the currency undergoes. Since the BTC halving happens every four years, the first one happened in November 2020, and the second one happened in July 2020.
Both preceded a significant Bitcoin adoption wave.
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What will Bitcoin’s inflation be after the halving?
In the May 2020 Bitcoin halving mining rewards will drop from 12.5 Bitcoins per block, to 6.25 Bitcoins per block.
This will reduce Bitcoin’s yearly inflation to 1.8%, in contrast, Gold’s yearly inflation averages 3%. Meaning that Bitcoin will become even more scarce than Gold after the next halving (this is why many people call Bitcoin “Digital Gold”).
How many Bitcoins will be generated per day after the reward reduction?
At a block reward of 12.5 Bitcoins per block and block time of 10 minutes, miners are currently generating 1,800 Bitcoins a day. After the 2020 Bitcoin halving, this number will be reduced to just 900 new Bitcoins per day (6.25 BTC per block).
How many bitcoins will there be at the time of the halving?
At the time of the 2020 BTC block reward reduction, 18,375,000 Bitcoins will have been mined in total. That’s approximately 85% of the total Bitcoin supply.
Now, many estimate that over 25% of all Bitcoins have been already lost. This would mean that at the time of the halving there would in fact only be around 13,700,000 Bitcoin available. That’s not even 0.002 Bitcoin for every human on Earth!
What will the Bitcoin price be at the halving?
Both halvings that Bitcoin has had so far have had served as powerful price catalysts and they have been the best times ever for investing in cryptocurrency.
Right after the first halving in 2020, the Bitcoin price rose from $12 to $140. Weeks after the second halving in 2020, Bitcoin started a rally that propelled its price from $582 to $20,000.
The Bitcoin price has 2 main catalysts for a rally when a reward reduction occurs.
- Buy the rumor, sell the news: Speculators like to buy an asset prior to an important event. This is not only true in crypto markets, but also in traditional equities. This effect is what caused Bitcoin’s price to rally 1 year prior to the halving in 2020 and 2020.
- Impact on the market of the reduced daily supply: After the halving occurs and speculators sell, the heavily reduced inflation will start kicking in. Instead of 1,800 new Bitcoin’s available per day on the market, there will now only be approximately 900 Bitcoins (6.25 BTC per block). This means that if there is more market demand than 900 Bitcoins on a given day, the price will go up.
The past 2 rallies where exclusively fueled by retail money. However, all signs indicate that large institutions (like Fidelity, NASDAQ, and JP Morgan), are getting their Bitcoin investment infrastructure ready right in time for the Bitcoin halvening.
It’s not too outlandish to think that they are aware of the impact a block reward reduction may have and that they will be offering Bitcoin as an investment option to their millions of clients.
What do I need to do before the Bitcoin halving?
If you are a regular Bitcoin holder then there is nothing that you need to do leading up to the block 210,000 from the last halving. Unlike a hard fork, for example, you don’t need to move your coins to any specific Bitcoin wallet.
You can just keep your coins in your wallet like you regularly do. Simply sit back and relax, watch how impressive it is to have a form of money that controls its own monetary policy, and maybe keep an eye on the BTC market.
On the other hand, if you are a Bitcoin miner you will have to closely monitor your profitability since your block reward will be reduced by 50%.
In the past 2 halvings, this profitability reduction was balanced out by a significant Bitcoin price rally before the rally, only time will tell if this time will be similar.
Pascal Thellmann is an algorithmic trader mostly focused on crypto breakout strategies. He started CoinDiligent to share his learnings and give paid access to some of his automated trading strategies. You can get in touch with Pascal on LinkedIn or Twitter.
Bitcoin halving is coming: everything you need to know about it
One of the most anticipated events in the cryptocurrency industry for 2020 is the third Bitcoin halving, sometimes called a “halvening” by the bitcoin and cryptocurrency community. It will occur on May 20th.
Let’s find out what is the Bitcoin halving, and why is it so important for the entire crypto community.
What is a bitcoin block halving?
It is a process of reducing the rate at which new cryptocurrency units are generated.
Bitcoins are generated whenever a “block” of transactions are solved by miners and implemented to the Bitcoin blockchain. The process occurs every 10 minutes. So, every 10 minutes new bitcoins are made.
This is an expensive process which requires special hardware and loads of electricity. Miners are rewarded with new bitcoins in return.
On May 20th 2020, the total number of bitcoin mined by miners per block will slide down from 12.5 to 6.25 BTC. When bitcoin first appeared, the block reward was 50 BTC.
This halving will reduce the amount of bitcoin rewarded to miners, as a result, it will increase the coin’s scarcity.
We should expect 32 bitcoin halving events only, and after them no more BTC will be created.
When was the last halving of Bitcoin?
The last bitcoin halving happened in July 2020, just 6 months before bitcoin’s price spike.
Does it affect BTC price?
The block reward halving may have a long-term positive effect. Just imagine: if fewer bitcoins are being generated, the newly increased scarcity automatically makes them more valuable. But this doesn’t happen right away.
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