Bitcoin (BTC) is the world’s largest cryptocurrency by market cap, yet, like every other token out there, it started its journey from scratch. Among many other aspects, its deflationary design was, and still is, one of the most significant powers that helps BTC preserve, and gains valuation over time. Bitcoin halving is the most notable event within the asset’s deflationary framework, and today, we’ll explain why and how it actually contributed to Bitcoin becoming number one.
Bitcoin halving is essentially the regular, algorithmic decrease in BTC’s block reward. Specifically, it means that the rewards miners get for validating is slashed by 50% every 210,000 blocks. To make everyone fully grasp this, let’s take a look at each element of the above definition in detail.
In essence, Bitcoin mining is the process of validating and adding blocks of transactions to the Bitcoin blockchain by solving predetermined mathematical problems. This requires specialist gears, which consume relatively high electrical energy.
For their efforts, miners are rewarded by a certain amount of newly minted BTC that they receive after they have appended the block of validated transactions to the blockchain. This is called block reward, as it compensates miners for completing a block.
Since mining is the only way to mint new BTC, the fact that the amount of block reward miners receive halves every four years makes BTC’s overall issuance exponentially harder over time. To illustrate, here’s an interesting figure: as of May 27th, 2022, around 19,050,000 BTC out of the 21,000,000 were minted and circulated, but issuing the remaining 2,000,000 will take miners until 2,140 at the current pace.
With all that considered, it’s easy to see why many call Bitcoin a deflationary asset, as getting it will become exponentially harder over time. To answer the question of how this affects its valuation, let’s take a look at inflation’s definition: a general increase in prices and fall in the purchasing value of money. Consequently, and since deflation is the opposite of inflation, we can say that an asset being deflationary means that its purchasing value will increase over time.
Currently, the countdown until the next halving stands midway, as the previous one happened in 2020, and the next such event is expected to take place some when in 2024. At that time, the actual reward of 6.25 BTC per block will be reduced to 3.125 BTC. This is scheduled to come into effect at block 810,000, which would fall on June 11, 2024, with today’s pace.
All in all, halving played a crucial role in Bitcoin’s rise to the top. Still, it has much more duty than just that: investors expect this deflationary design feature to carry BTC’s price on its back for decades to come, and potentially make it the ultimate digital store of value, which many have labeled Bitcoin already.
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