Bitcoins are created as a reward when someone with lots of computing power produces a new block of transaction data. This reward is “halved” every few years, making Bitcoins more expensive and mining only worthwhile with energy-efficient computers.

Bitcoin halving is a significant event in the cryptocurrency world that affects the production of new Bitcoins and has broad implications for Bitcoin mining and its value. At its core, a Bitcoin halving is an event where the reward for mining new Bitcoin transactions is cut in half. This mechanism is built into the operation of Bitcoin to control the supply of this digital currency and combat inflation.

Bitcoin miners, companies that deploy considerable computing power to process and secure Bitcoin transactions, find themselves at the heart of this process. Mining Bitcoin is energy-intensive, leading these companies to establish operations in locations where electricity costs are lower, such as China, the US, Norway, and Kazakhstan. These miners play a crucial role as the ledger keepers of Bitcoin, contributing immensely to the digital currency's security and integrity through their processing power.

Historically, Bitcoin halves approximately every four years, a schedule that has seen halvings occur in 2012, 2016, 2020, and the latest in 2024. Each halving reduces the miners' reward, augmenting cost pressures especially as the number of Bitcoins produced daily — currently at 900 — will decrease. Given that over 19 million Bitcoins out of a capped 21 million have already been mined, these halving events signal a move towards Bitcoin's ultimate supply limit, a feature designed to safeguard against inflation.

The recent halving happened on April 19, 2024, marking a pivotal moment where the mining reward was significantly reduced. This reduction is anticipated to have a dual effect. On one hand, it increases the production cost for miners, making the efficiency and location of Bitcoin mining operations even more crucial due to the reliance on affordable energy. On the other, it has the potential to increase Bitcoin's value. Since the number of new Bitcoins entering the market decreases, assuming demand remains constant or grows, the currency's value might rise. This potential for increased value leads to heightened market speculation and volatility, especially around halving events, reflecting the speculative nature of cryptocurrencies as an asset class.



What is Bitcoin halving?

In the realm of cryptocurrency, a big event has just happened. A Bitcoin halving. But what is that exactly? What do China, the US, Norway and Kazakhstan have in common? Right, they all have a big Bitcoin mining scene. Bitcoin miners are companies with lots of computing power. It's energy intensive, so they locate themselves where electricity is relatively inexpensive. Miners act as digital bookkeepers who secure all Bitcoin accounts and transactions. And that takes huge amounts of processing power. But for professional miners, all of that effort pays off, because their work is rewarded with Bitcoins. 900 new Bitcoins are produced each day, at least for now. But things can't just go on this way indefinitely. Over 19 million Bitcoins have already been generated, yet the total supply of Bitcoin is capped at 21 million. That's stipulated in the Bitcoin protocol to protect the currency against inflation, so the miners' rewards must eventually fall. And they do that all at once, at what's called a Bitcoin halving. Occurring roughly every four years, that's when miners' rewards are cut in half. Four halvings have now taken place in 2012, 2016, 2020 and now in 2024. The latest halving just occurred on April 19th. For the miners, less reward means more cost pressure. So energy prices at their data centre locations are growing increasingly important. Yet miners stand to profit too. Because when fewer new Bitcoins are being made, yet demand remains the same, or even increases, the cryptocurrency rises in value. And since everyone knows that, and they all want to cash in before others do, the market price for Bitcoin fluctuates even more wildly than usual around the time a halving occurs. No longer a niche market, cryptocurrencies are now a highly speculative asset class of their own.

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