The Bitcoin Halvening, or Halving, describes the moment when the subsidy earned by miners for successfully validating a block is reduced in half. This reduction ultimately reduces the annual supply of new Bitcoin (btc) added to the market, and increases Bitcoin’s stock-to-flow ratio making the resource scarcer. The Halvening is a crucial aspect to the underlying fundamentals of Bitcoin, as the reduction of supply guarantees a finite limit to the number of Bitcoin that will exist.

When a miner validates a new block, they are awarded a predetermined number of Bitcoin. This fixed number of Bitcoin earned is called the subsidy. On a macro scale, the subsidy allows for more Bitcoin to be supplied to the market through a controlled and predictable manner (to eliminate inflation), and on a micro scale, this subsidy earned gives miners the incentive to validate new blocks. It is essentially a paycheck given to miners by the Bitcoin ecosystem.

The reduction of supply resulting from the Halvening guarantees that there will never be more than 21,000,000 Bitcoin in existence. If the subsidy earned by miners always remained constant, it would be impossible to cap the supply of Bitcoin making it a finite resource. Since the subsidy of Bitcoin is mathematically scheduled to be reduced in half on set intervals through the Halvening, it makes Bitcoin a uniquely scarce and limited resource.

The Halvening occurs after every 210,000 blocks and reduces the subsidy in half. When Bitcoin was first created, the subsidy earned by miners was 50 btc for each validated block. This means that approximately 10,500,000 Bitcoins were supplied to the market during this time (210,000 blocks x 50 btc per block). After the first Halvening in 2012, Bitcoin’s block subsidy was reduced to 25 btc for each validated block (5,250,000 btc supplied). After another 210,000 blocks were mined, the second Halvening occurred and reduced the subsidy to 12.5 btc per block. In May of 2020, the third Halvening will once again reduce the subsidy in half to 6.25 btc per block.

If the market demand for Bitcoin remains constant or increases, the Halvening will make Bitcoin inherently more valuable. This is understood through universal basic economics of supply and demand.

To recap, the Bitcoin Halvening is a known event that reduces the new supply of Bitcoin to the market. The amount of new Bitcoin awarded to miners as a subsidy for successfully validating a new block is reduced in half. This results in the overall macro supply of Bitcoin added to the market to also be reduced in half, and allows for Bitcoin to be a truly finite resource by its fundamental nature.

HODL on,

The MyCryptoCanvas Team

MyCryptoCanvas is not providing financial or investment advice. Consult a professional before making investments.