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What is the Bitcoin halving?

What is the Bitcoin halving?

Bitcoin needs a mining process to create new Bitcoins. To do this, complicated math problems need to be solved that verify transactions in the currency. Miners are people who offer their computer space to host these equations because Bitcoin needs a server to run. This server is spread across different miners around the world, and as an incentive, these miners are rewarded with a bit of Bitcoin.

Every four years, an event known as Bitcoin halving occurs, which rewards its miners. This happens approximately every four years because that’s how long it typically takes for 210,000 blocks to be mined. During each Bitcoin halving event, the amount that the miners receive as a reward gets cut in half.


So, why does it happen?

Deflationary cryptocurrencies like Bitcoin deflate over time as the supply decreases. Bitcoin has a predetermined maximum supply of 21 million Bitcoins. The halving reduces the rate at which new bitcoins are created and introduced into total circulation. Cutting the miner’s reward in half means that the total new available supply of bitcoin decreases. Having a smaller supply could potentially help increase its value as the purchasing power of the coin goes up. Once all the supply of Bitcoin has been mined, the supply will be fixed, making Bitcoin inherently deflationary, as the supply cannot be increased further.

During the last halving in May 2020, the block number was at 630,000, it’s estimated that the next halving will happen in April 2024 when the blocks hit 740,000. The total new bitcoins between the last halving event will reach 656,250 BTC.


What has happened historically?

November 28, 2012:

The first halving occurred in November 2012. In this halving, the Bitcoin block reward was cut from 50 BTC to 25 BTC per block.


July 9, 2016:

Four years later, during the Bitcoin halving in 2016, incentives were reduced to 12.5 BTC for each block mined. Following this halving the price of Bitcoin increased by 60% to over $1,000 during the time period of July 2016 to January 2017.


May 11, 2020:

In 2020, the mining reward decreased from 12.5 BTC to 6.25 BTC for each block mined. After this halving, the price continued to increase until April 2021 by around 600%, from $9,000 to $63,000. After a year of bullish activity, the following three months saw the price fall by around 50%, showing its renewed volatility.


If history repeats itself, what does this mean for asset value?

Exploring the relationship between Bitcoin halvings and the price during previous events, shows a clear trend of a price increase during the time of the halving and in some cases, a decline to follow.

During this year’s halving, we should expect to see the mining rewards halved from 6.25 BTC to 3.125 BTC per block mined. We will continue to see these patterns in price in the future Bitcoin halving’s until around 2140 when all Bitcoin will have been mined.


What does the halving mean for Bitcoin adoption?

Since the Bitcoin halving in 2016, adoption rates have been increasing. During the second halving in July 2016, there were 90.44K active crypto addresses. This quickly increased to 4.72 million active addresses during the third halving in May 2020.

Statistics from the State of Crypto Index show that the number of active addresses was at its highest in March 2024, 24.88 million, since the buying and trading of cryptocurrencies began. During this time, Bitcoin’s price was bullish and reached its all-time high of $73,750 in mid-March 2024. This could show the correlation between the market of crypto and the adoption of cryptocurrencies, suggesting a potential surge in adoption during halving events if prices rise.


What will the impact be on risk?

Halving’s are often followed by periods of price volatility. While short-term investors may focus on the price, long-term crypto owners who have prioritised self-custody should focus on protection to make sure that their assets are safe when stored or on the move. While scarcity might drive the price up there is no guarantee of a smooth trajectory before stabilising.  

“In the short term, the upcoming halving will put supply and demand slightly out of kilter, driving market pressure as more investors seek to get a piece of the pie. This is likely to continue until the elevated price deters new investors, which will restore a closer balance between the number of buyers and sellers and settle the market. In addition, the industry will emerge with more users, a higher market cap, and greater liquidity. As such, we’re likely to see a stabilising effect on the market in the mid to long term.” 

Duncan Ash, Head of Strategy, Coincover

The increased investment and interest in Bitcoin will likely attract bad actors for several reasons. With the potential rise in price due to scarcity, successful hacks could yield a reward for malicious actors, where they would likely target exchanges holding a significant amount of bitcoin, or individual investors with larger holdings. There are likely to be more targets as more people invest in Bitcoin, and attackers are likely to take advantage of newer investors who have less experience when it comes to managing their assets securely. After the launch of the ETFs in the US and now the halving, Bitcoin is in the spotlight and will not only attract the attention of the media and investors but cybercriminals looking to capitalise on the increased interest.


What can be done to mitigate these risks?

As a crypto business:

Ensure that you are adopting enhanced security measures. There are several steps that you can take to make sure the assets under your management are secure. Implementing multi-signature wallets removes single points of failure, requiring multiple approvals for withdrawals, flagging, and stopping suspicious transaction attempts. Regularly assess and update security protocols to stay ahead of evolving hacking techniques, working with a protection expert like Coincover ensures that you’re utilising the most up to date protection technology without the time intensive legwork.

As a personal investor:

Secure your seed phrase, never share your seed phrase information with third parties and make sure you properly research best practices and if you’re a new Ledger user, consider solutions like Ledger Recover to ensure you don’t lose access.  

Phishing and hacking attempts are constantly becoming more sophisticated, don’t click on suspicious links or download attachments from unknown senders. Equally, be wary of unsolicited investment advice. Instead, work with reputable providers that have an extensive track record of robust security.


Where does Coincover come in?

Coincover provides the best defence in Blockchain, setting the standard for safety, integrity, and protection. With a comprehensive risk management solution, Coincover shields users from the five categories of risk: lost access, human error, cyber threats, and operational and technology failure. By addressing these vulnerabilities, users are protected from the risks inherent in the crypto threat landscape. This ensures peace of mind when holding and using crypto, especially during periods of market optimism when the price spikes.

Get in touch with the Coincover team to discuss how you can protect your assets.

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