Halving

Halving represents a phenomenon when crypto mining rewards are cut in half.

Cryptocurrency networks that run on Proof-of-Work (PoW) algorithms require the computers (nodes) that uphold them to solve complex equations that are used to confirm transactions.

This process is known as mining. In exchange for their work, these nodes are given rewards in the form of the crypto token that belongs to that particular network.

For example, on the Bitcoin network, halving happens regularly at preset intervals of every 210,000 blocks. This is built into the Bitcoin protocol.

Bitcoin halving in particular is a process of dividing the number of generated rewards per block in order to maintain the total supply of Bitcoin, which cannot exceed 21 million BTC.

Block rewards are the main engine of Bitcoin mining and, therefore, the main power behind the operation of the network.

This process is not very well understood and has given way too many hypotheses. In theory, the increased scarcity drives the price of a given cryptocurrency up.

Consequently, if miners have less incentive to keep doing their work, less coins will be mined, and the coins that are mined will be more valuable.

May 2020 Bitcoin Halving

On May 12, 2020, a Bitcoin halving took place. Bitcoin mining reward was cut in half, falling from 12.5 BTC for every block of transaction data that was added to the network to 6.25 BTC; the number of BTC produced each day fell from 1800 to 900.

Despite the massive news cycle that surrounded the halving event, the price of Bitcoin managed to stay relatively stable, providing a valuable case study for future halving scenarios.

Bitcoin had already halved twice previously, with each instance resulting in an increase in the price of the crypto.