Everything you need to know about Bitcoin Halving ✂

Hey fam!

This week, we’re checking in from the hottest (literally) crypto/web3 hub, Miami! 🌴We both have spent the past few days here taking in all of the buzz and getting re-inspired around the possibilities of all things web3…oh, and having a lot of fun too lol. 

We’ve talked about Bitcoin quite a bit in this newsletter, but haven’t covered crypto as much recently because of the regulatory issues that keep arising with it. But this week, we came across an interesting topic that neither of us had heard of before in one of our other favorite newsletters, The Milk Road (shoutout to them! #goals). 

The topic? Bitcoin halving. 

Okay, we know. Sounds confusing…?! Well, that’s why we’re here–to learn about it together. Now let’s dive in and get started!

Let’s refresh the basics. What even is Bitcoin?

We’ll keep this short and sweet. In case you missed our previous post that breaks down Bitcoin in detail,  here’s a short excerpt that breaks it down: “At a high level, bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without a middle man (AKA the bank). All transactions are public and recorded on the blockchain. There will only ever be 21 million bitcoins produced, so people often consider it to be digital gold.” Also, we’ve gotta say… It's pretty cool to be able to cite our own post years later. Very slight flex 🤪 

What’s the lowdown on Bitcoin Mining?

Bitcoin mining is the process used to verify and add new transactions to the blockchain, which is the public ledger for Bitcoin. In order to properly verify the transactions, specialized computers, AKA "miners," solve complex math problems (think Calculus 3 on steroids) to confirm and validate these transactions.

These miners ultimately get rewarded with newly minted bitcoins and transaction fees for every block of transactions they validate. But before you start googling “how to become a bitcoin miner,” it’s important to know that the mining process isn’t an easy task, as the difficulty of the math problems keeps going up over time to make sure a new block gets added to the blockchain about every ten minutes. It also takes up a lot of power and energy to solve these problems. However, the people who decide to take on this feat are literally carrying the blockchain on their backs because mining keeps the blockchain secure and free from fake transactions and scams. 

Okay, so now what is Bitcoin Halving?

Now that we understand what’s going on with Bitcoin mining, let’s add in the halving. And like the name suggests, something is getting split in half. What exactly? The reward amount for successfully mining Bitcoin transactions. In other words, *snip snip* to the rate at which new Bitcoin is released into circulation.

Why is this happening?

To control the circulation of Bitcoin out there in the world, the reward for mining crypto transactions is cut in half after the Bitcoin network successfully mines 210,000 blocks, which usually takes about 4 years or so. This isn't new, though. It has happened a few times as of April 2023:

• Nov. 28, 2012, to 25 bitcoins

• July 9, 2016, to 12.5 bitcoins

• May 11, 2020, to 6.25 bitcoins

With each instance of crypto halving taking place, it's a sign that we're getting even closer to the maximum supply of crypto in circulation, 21 million Bitcoin! And for those doing the math out there, that's projected to be in 2140 (117 years from now!)

So is this a good thing or a bad thing in the end?

Overall, Bitcoin halving is a good thing for a couple of reasons. 

• Reduces inflation: By cutting down the supply of new bitcoins in circulation, the existing bitcoins are more valuable. 

• Increases prices: As the lower supply makes it more in demand, people pay more for it. In other words: yesterday's price is not today's price!

But when you think about it from the side of the miners, they may not be too excited:

• Same risk, lower reward: Since the rewards for miners are cut in half, it becomes less profitable for them. This can lead to fewer miners participating in the network, potentially causing a security risk to the blockchain.

• Centralized mining: Fewer miners can also mean more coordinated efforts and mining centralization, where only a few large mining pools with powerful equipment can compete in the market, making it difficult for smaller miners to participate.

• Price volatility: We already know that Bitcoin prices can be volatile. Unfortunately, halving events can contribute to more volatility, making it hard to predict the future value of Bitcoin.

What does this mean for you?

TLDR: there is nothing to worry about in the short-term, but keep your eyes peeled for the near future. It's looking like the next Bitcoin halving event will take place around this time about a year from now. Bitcoin halving can have serious impacts on price, mining costs, adoption, and even risk. If you were thinking about Bitcoin mining or buying some BTC, keep these timelines and risks in mind. Also, be sure to DYOR, which means Do Your Own Research in the crypto world, starting here with Web3 For the Culture. Until next time!

— Chad & Kendall