The online Bitcoin chatter this week will be dominated by talk of “The Halving”. No it’s not the new Stephen King novel and it’s nothing to be scared of, quite the opposite in fact. By the end of these bullets you should be half way to knowing what it’s about and why it’s important:
1. 10 Minute Blocks
Every 10 minutes a new block of transactions is added to the Bitcoin blockchain. The miner who adds the block is rewarded for the work they’ve done with some newly created bitcoin, as per the schedule written in the code. A block is simply a record of transactions between the users of bitcoin and the blockchain is a record of how much bitcoin each user address owns.
2. The Block Subsidy
As mentioned above, a miner is the one who completes the work to know which transactions moved where and adds those transactions to the blockchain. The miner is compensated for that work through a block subsidy (reward) and transaction fees. The block subsidy is currently 6.25 newly created bitcoin.
3. Fixed Supply
Right now, you may be wondering about that 21 million fixed supply of bitcoin that Bitcoiners keep telling you about. How can it be fixed if 6.25 new bitcoin are created every 10 mins? The process of creating new bitcoin every 10 mins has been happening since 2009 and currently 19.7 million bitcoin have been made, however the block subsidy will end when we get to 21 million, at which point miners will only be rewarded in transaction fees instead.
4. 210,000 Blocks
When Bitcoin first started in 2009, the block reward was 50 new bitcoin every 10 mins, but each time 210,000 blocks are added, which takes approximately 4 years (210,000 x 10 minutes), the block reward is cut in half. It’s because of this halving process that the full 21 million bitcoin supply limit won’t be reached until 2140.
5. 20th April at 5am GMT
Early morning this Saturday 20th April, the halving will happen, and the block subsidy will be reduced to 3.125 bitcoin. I remember following along on YouTube during the depths of covid restrictions 4 years ago when it was cut from 12.5 to 6.25, but there is no need to stay up late or get up early. There’s no big event that’s particularly interesting to watch, it just happens, like a clock hitting the stroke of midnight and then carrying on afterwards. Although that doesn’t make it less important.
6. Why it Matters
The halving is an important event simply because it enforces the rules of Bitcoin and is a great reminder of the ultimate fixed supply and decentralised nature of it. There is also an immediate impact on the new supply. Anyone who wants to acquire new bitcoin will be faced with the challenge of only 3.125 being created for them to attain every 10 mins. If they can’t get any of the new bitcoin, they must convince current holders to sell them their bitcoin instead. As a result, the 18 months following the halving have historically seen a material increase in the $ price of bitcoin.
7. Inflation Rate
The move to 3.125 bitcoin as a block subsidy also means the inflation rate of Bitcoin is halved to under 1%. Significantly less than the 2% central banks around the world try to manufacture and mainly end up failing to do.
8. In Other News
- Craig Wright is not Satoshi.
- BTC Price hit new ATH this month against every world currency.
- ETFs have been wildly successful.
- UK FCA starts to consider loosening restrictions on their own ETFs.
- Microstrategy is close to entering the S&P of the 500 most valuable companies in the US.
- Real Bedford secure investment and promotion looks a certainty. (More on that next time)
Until then, enjoy The Halving, it only happens every 4 years. Celebrate the fact there is a global monetary asset available to you, where the supply schedule is fixed by rules and can’t be debased by rulers such as central banks.
Peace, love and Bitcoin,
Rob
Disclaimer: Whatever I present here are my own thoughts and opinions and not necessarily that of Visa.