There is only one Mona Lisa in the world, and the amount of gold on Earth is limited. But why mention these in the same sentence? Because scarcity drives value.
Satoshi Nakamoto, the creator of Bitcoin, seemed to embrace this idea by ensuring that Bitcoin would not have an unlimited supply. Instead, Bitcoin’s network was designed to cut mining rewards in half periodically, reducing the rate at which new coins are introduced into circulation.
In previous lessons, we’ve discussed that Bitcoin’s total supply is capped at 21 million coins. But what mechanism enforces this limit? The answer is Bitcoin halving.
This lesson explains how Bitcoin halving works and its impact on the Bitcoin supply and price.
Contents
Bitcoin Mining and Block Rewards
Gold and other natural resources are extracted through mining. Similarly, Bitcoin is mined—but instead of physical labor, it requires computational power.
Bitcoin mining is the process of verifying transactions and recording them onto the blockchain. Since Bitcoin is decentralized, transactions are verified not by a central authority, but by a distributed network of users called miners.
How Does Bitcoin Mining Work?
Miners use high-powered computers to solve complex mathematical equations. This system, known as Proof of Work (PoW), is the method through which the Bitcoin network verifies transactions.
The first miner to solve the cryptographic puzzle is rewarded with newly minted Bitcoin, known as the block reward.
These block rewards are the only way new Bitcoins enter circulation.
Since Bitcoin’s supply is finite, Nakamoto implemented a system where block rewards decrease over time. This is where Bitcoin halving comes in.
What Is Bitcoin Halving and When Does It Occur?
Bitcoin halving is a built-in mechanism that reduces mining rewards by 50% every 210,000 blocks.
Since one block is mined roughly every 10 minutes, halving occurs approximately every four years.
When Bitcoin launched in 2009, the initial block reward was 50 BTC. The first halving event took place on November 28, 2012, reducing the reward to 25 BTC per block.
Bitcoin halving will continue until all 21 million Bitcoins are mined, which is estimated to happen by the year 2140.
Once the final halving event occurs, the mining reward will be reduced to zero, making it impossible to create more than 21 million Bitcoins. At that point, miners will rely solely on transaction fees as their incentive to maintain the network.
How Does Bitcoin Halving Affect Its Price?
The impact of Bitcoin halving on its price is widely debated in the crypto community.
Some believe that reducing Bitcoin’s inflation rate (due to the decreasing supply) could increase its price. The idea is simple: if supply decreases while demand remains stable or grows, the price should rise.
Others argue that halving alone does not increase demand: while fewer Bitcoins are created, there is no guarantee that people will value them more.
Historically, past Bitcoin halvings have been followed by significant price increases, though correlation does not imply causation.
While theories vary, one fact remains: Bitcoin’s design ensures that its supply remains limited, and halving events help regulate inflation by gradually slowing the introduction of new coins into circulation.
The long-term effect of halving remains uncertain, but Bitcoin’s scarcity continues to support its value proposition as a digital asset.
Conclusion
Bitcoin halving is a key mechanism that controls its supply, ensuring that Bitcoin remains scarce and valuable.
While its impact on price is uncertain, one thing is clear: Bitcoin is designed to be deflationary, with decreasing rewards ensuring that the total supply never exceeds 21 million coins.
