TLDR: The Bitcoin halving is a monumental event that reminds us each time of the immutability of the Bitcoin protocol. Despite its memetic significance to Bitcoin’s essence, it usually doesn’t cause any significant price action – at least in the short term. Doomsday scenarios like a miner death spiral have always been refuted.
The author of this piece, yours truly, will witness his first BTC halving soon after this article goes live. A class of 2020 guy, I took my first rabbit hole dive in June 2020, too late to witness the previous halving, which took place in May 2020. I can’t wait for this one, I’ll be glued to the halving clock.
Bitcoin’s Tokenomics: the Halving
The Bitcoin Halving, also called the halvening, must be the most talked about event for a number on a screen changing one digit (in binary terms it’s one digit). Every 210.000 blocks, or roughly every four years, the number of BTC that the Bitcoin protocol spits out to lucky miners is cut in half. For the first four years of Bitcoin’s existence, the amount of new bitcoins issued every 10 minutes was 50.
- First Bitcoin halving, November 28, 2012 — Block reward down from 50 BTC to 25 BTC
- Second Bitcoin halving, July 9, 2016 — Block reward down from 25 BTC to 12.5 BTC
- Third Bitcoin halving, May 11, 2020 — Block reward down from 12.5 BTC to 6.25 BTC
- Fourth Bitcoin halving date — April 20 (?), 2024 — Block reward down from 6.25 BTC to 3.125 BTC
Strictly speaking, the unit of account in the protocol is a satoshi. What will be issued per block after the 2024 halving is 312.500.000 satoshis.
This makes the so-called tokenomics of Bitcoin exceptionally easy to grasp. The inflation rate is cut in half for each fixed number of blocks. There’s no burning mechanism, no ‘unlock schedule’ of when VC investors can sell their coins.
The latter point is important to keep in mind. Unlike most crypto projects that came after Bitcoin, BTC is handed out based on work, not based on capital investment. Secondly, Bitcoin’s issuance schedule is hard-coded in the protocol and not subject to community governance (yes, theoretically the protocol could still be changed, but because a large part of the community would not accept this, it would lead to a hard fork).
The Max 21 Million Meme
The pre-programmed series of halvings and their subsequent BTC-per-block issuance will lead to a total issuance of 21 million BTC. No more BTC can ever come into existence.
This number is arbitrary – Satoshi could also have chosen 17 million, or 21 billion, or 1 billion or whatever. The point is that it’s a finite number that is predictable. It’s set in stone.
This immutability gives Bitcoin a quality of being set in stone. And things that are set in stone last. Compare this to the issuance schedule with Ethereum. At first, Ethereum’s consensus mechanism was proof-of-work, then it changed to proof-of-stake. The amount of ETH issued per block changed dramatically after this transition, and on top of that ETH started to get burned at a variable rate. Very clever, very adaptable, but to the layman onlooker: a mess. Not set in stone. Bitcoin has this set-in-stone quality of having a fixed and limited supply, contrasting it with the monetary debasement of fiat currencies such as the dollar.
Price Action After Previous Halvings
Despite its…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
