Analysis | What Is Bitcoin 'Halving' and Will It Push Up the … – The Washington Post

Bitcoin is notoriously volatile, prone to sudden price surges and swift reversals that can wipe out millions of dollars of value in a matter of minutes. Those changes are often mysterious to market observers, given the digital currency’s lack of fundamentals, or ties to the real economy. Bitcoin has another quirk, one that was built into the code that gave it birth: every so often, the formula that governs the rate at which new tokens are created changes. As another such event — called a halving — approaches, Bitcoin supporters and skeptics are debating what kind of impact it may have on the coin’s value.
1. Where do baby Bitcoin come from, anyway?
One of the characteristics that gave rise to a fascination with Bitcoin is the way its pseudonymous creator, Satoshi Nakamoto, tied the creation of coins to the work needed to prevent counterfeiting. Bitcoin is generated by so-called miners whose computers perform complex calculations that validate the transactions on what’s known as the blockchain, a public digital ledger. The miners compete with each other to earn newly issued tokens known as a block reward.
2. What is a Bitcoin halving?
A halving – sometimes referred to as halvening – is a planned reduction in rewards miners receive (the term is mentioned in Bitcoin’s code). Halvings happen once every four years or so – more precisely, every 210,000 blocks of transactions. As the name suggests, each one cuts the amount of Bitcoin miners receive per block reward in half. At Bitcoin’s launch in 2009, miners received 50 Bitcoin per block, but that reward was reduced to 25 in the first halving, in 2012, to 12.5 in 2016, 6.25 tokens in 2020 and is scheduled to drop to 3.125 coins in 2024. 
3. What’s the point?
Bitcoin’s issuance is limited in several ways. For one thing, according to its founding protocol, just 21 million will ever be in circulation. That’s appealing to many who fear that fiat money — the kind issued by governments — can lose its value to inflation if too much is printed. Supporters argue that Bitcoin, by contrast, will be guaranteed to increase. Halving also prevents inflation by acting to periodically slow the pace at which Bitcoin are created, so as to not outstrip demand. To other observers, halvings can serve as a hurry-up-and-buy signal by suggesting that slower growth could be accompanied by a bump in price.
4. When is Bitcoin’s halving happening?
The quadrennial event is due next around April 2024. In general, predicting the exact date is hard because the time it takes to generate new blocks can slow down or speed up depending on a number of factors. Going by most estimates, there will be 64 Bitcoin halvings before that 21 million maximum is reached sometime around 2140, at which point halvings will stop. Once that happens, miners will no longer collect rewards and are expected to rely on charging fees for handling transactions, similar to what credit card companies do.
5. Do halvings boost Bitcoin’s price?
That’s a matter of heated debate. In 2012, for instance, Bitcoin gained about 8,000% in the 12 months following the cut in rewards, and again rose almost 1,000% in the wake of the 2016 cut. The last halving, in May of 2020, was followed by a bull run that ended in a record Bitcoin price of almost $69,000 in November 2021. As of mid-April this year, Bitcoin has revived about 67% from an epic rout in 2022, to around $30,000. The next halving holds the potential to trigger an advance of at least 81%, according to Bloomberg Intelligence and Matrixport. Skeptics, on the other hand, argue that attributing price hikes to halving is specious, at best. The second halving, for example, came at a time when Bitcoin was already gaining greater mainstream recognition, and coincided with the boom in initial coin offerings, many of which had to be bought with Bitcoin. But the bounce has sputtered of late, restrained by cooling expectations of US Federal Reserve interest-rate cuts. A regulatory crackdown on crypto in the wake of the FTX exchange’s collapse in November 2022 also threatens the market outlook.
6. If I own Bitcoin, will anything change for me after the halving?
No, except inasmuch as any subsequent price change would leave you richer or poorer. But it will be impossible to know how much of the change is due directly to the halving.
–With assistance from Sidhartha Shukla and Brandon Kochkodin.
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