Halving

What Is Halving (in Crypto)?

Halving in crypto is an event where the rewards for mining new blocks on a blockchain are cut in half. This process is most famous in Bitcoin but occurs in other cryptocurrencies too. Halving events are built into a coin’s code to regulate its supply, making the asset scarcer over time, which can influence its price and demand.

N.B. note that mining rewards are different from gas fees which are transaction fees paid by users to process transactions on a blockchain (such as Ethereum) and go to miners or validators as payment for maintaining the network.

How It Works

• Mining Rewards Reduction: In Bitcoin, for example, miners are rewarded with a certain amount of Bitcoin every time they successfully add a new block to the blockchain. During a halving event, this reward is cut by 50%.
• Fixed Schedule: Bitcoin halvings occur roughly every four years or after every 210,000 blocks mined. The first reward was 50 BTC per block in 2009. After multiple halvings, the reward now stands at 6.25 BTC (as of 2024).
• Supply Control: Halving slows down the introduction of new coins into the market, helping maintain a fixed supply (21 million BTC for Bitcoin) and aiming to preserve value over time.

Example

Let’s say a miner currently receives 6.25 BTC for each mined block. After the next halving, this reward will drop to 3.125 BTC. While this halves the miner’s income per block, it also makes Bitcoin scarcer, potentially increasing demand as people anticipate a supply decrease.

Key Takeaways

• Halving reduces mining rewards by 50%, regulating the rate of new coin creation.
• By slowing supply, halvings aim to create scarcity, which can drive interest and possibly affect price.
• Halving events occur on a set schedule (about every four years for Bitcoin), and they’ll continue until the maximum supply is reached.

In essence, halving is a way to enforce scarcity in the crypto world, helping sustain value and encouraging demand over time.