Bitcoin Halving: What is Bitcoin Halving? Bitcoin Halving Explained

Bitcoin Halving: What is Bitcoin Halving? Bitcoin Halving Explained

Bitcoin Halving: What is Bitcoin Halving? Bitcoin Halving Explained
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What is Bitcoin Halving? Bitcoin Halving Explained

What is Bitcoin halving? In a few minutes you’ll learn the significance of this Bitcoin event, including why, contrary to popular belief, Bitcoin’s inflation WON’T be lower than the US dollar’s. Why? Because Bitcoin’s inflation is already lower than the US dollar’s inflation, and has been for a long time.

Built into the code of Bitcoin, the Bitcoin halving happens every 210,000 blocks. (A block is a grouping of Bitcoin transactions that gets added to the blockchain, or record of all Bitcoin transactions).

Since Bitcoin adds a new block about every 10 minutes, the halving happens about every 4 years. When the halving happens (“the halvening”), the Bitcoin block reward, or BTC that BTC miners (transaction validators) earn for validating transactions and securing the network, gets cut in half.

The Halving’s Effect on BTC Inflation

If you’ve been following halving-related news, a lot of people are getting excited because they think that due to the block reward halving, Bitcoin’s “inflation” will decrease from ~3.67% to 1.8%.

According to some analysts, this means that Bitcoin’s inflation will be lower than the US dollar’s inflation, which is estimated at ~2.5%.

When people talk about Bitcoin inflation, they are talking about the creation rate of BTC. On the other hand, when people talk about dollar inflation, they are not talking about the creation rate of USD. Instead, they are talking about the buying power of USD relative to various consumer goods.

In other words, 1.8% BTC inflation means that the Bitcoin network creates 1.8% BTC per year. 2.5% dollar inflation means that everything will be 2.5% more expensive after a year. In effect, $100 in your pocket becomes $97.50 next year (ouch).

USD inflation in recent years. So if you keep money in a savings account, which on average pays 0.09% interest, you’re LOSING money. Image credit: US Inflation Calculator

If we compare BTC inflation to USD inflation using the idea that inflation represents loss of buying power, BTC inflation won’t be lower than USD inflation after the halving.

Why? Because Bitcoin’s inflation is already lower than the US dollar’s inflation, and has been for a long time. Here's an example:

Pizza gets 99.99997% cheaper thanks to Bitcoin

One of the most famous early Bitcoin purchases was 2 Papa John’s pizzas for 10,000 BTC. Yes, someone paid 10,000 BTC, or about $98.7 million at today’s prices, for 2 pizzas.

Back in 2010, no one thought that Bitcoin would become what it is today. Image credit: Bitcointalk

At today’s price of about $9,866.24 per BTC, it would cost about .003 BTC to buy 2 large Papa John’s cheese pizzas ($30 including 15% tip). Not 10,000 BTC.

What does this mean for inflation?

Assuming that Papa John’s cheese pizza prices in USD ($30) have stayed the same from 2010 to 2020, Bitcoin’s inflation was -99.99997%, while the US dollar’s was 18.3%. Therefore, when the BTC block reward halves, BTC’s inflation won’t become lower than the US dollar’s. It’s already MUCH lower - so low that the inflation is negative (deflation).

In other words, Bitcoin hasn’t inflated (lost buying power), it’s deflated (gained A LOT of buying power). So much so that while paying in dollars became 18.3% more expensive from 2010 to 2020, paying in Bitcoin became 99.99997% cheaper during the same time period.

Can you imagine a dollar in your pocket today becoming $3.33 million in 10 years? That’s what happened to Bitcoin.

It’s not Bitcoin’s inflation that has to go down, it’s the dollar’s (it never will).

Why the Halving is Significant Beyond Inflation (Effect on Bitcoin’s Price)

Beyond inflation, the halving has even further potential significance, which is as follows.

According to the basic economic principle of supply and demand, if the supply of something decreases, while the demand for it increases or stays the same, the price will go up.

Image credit: Brigham Young University - Idaho

Since the creation rate of Bitcoin gets cut in half (less Bitcoin supply) during the halving, you’d expect the price of a single BTC to go up if the demand for BTC increases or stays the same.

Given that the number of blockchain wallets is increasing every year (more demand - or at least more users), the price is definitely going to shoot up after the next halving right?

Well, let’s look at what’s happened after past halvings.

Bitcoin Halving Dates History

According to this Bitcoin halving chart, the Bitcoin halving history seems to tell us that after Bitcoin halvings, Bitcoin’s price shoots up big time:

what is bitcoin halving - bitcoin halving chart
386 days after the first halving (November 28th, 2012), Bitcoin hit an all-time high price of $1178 after increasing 9,218.67%. 525 days after the second halving (July 9th, 2016), Bitcoin hit another all-time high price of $19,800 after increasing 2,938.57%. Image credit: Master The Crypto

Next Bitcoin Halving: Bitcoin Halving 2020

Given that the price of Bitcoin seems to skyrocket after halvings, will the 2020 Bitcoin halving increase price yet again? I don’t think it’d be unreasonable to make a Bitcoin halving price prediction that the 3rd halving will see another Bitcoin price increase.

Aside from the fact that Bitcoin’s creation rate (supply) will get cut in half, while demand, or at least userbase (number of wallets) continues to grow, there have been many other developments in the Bitcoin space that should bode well for Bitcoin’s value.

Just as one example, Intercontinental Exchange (ICE), who owns the New York Stock Exchange, launched Bakkt, a Bitcoin exchange, custody, and payments platform. ICE Founder, Chairman, and CEO Jeffrey Sprecher has even said that “It [Bitcoin] has the potential to become the first worldwide currency”. And this is really only scratching the surface of everything that’s been going on behind the scenes for Bitcoin.

When combining these positive developments with the halving, it doesn’t seem unreasonable for the halving to be the catalyst that starts the next golden bull run.

Bitcoin Halving Countdown

Want to grab some popcorn and countdown the next Bitcoin halving? This fun Bitcoin halving clock has you covered.

Get Ready for the Halving but Stay Safe

Before you get excited at what the next Bitcoin halving might do, especially to the BTC price, always remember to keep your crypto safe.

Shortly after the 2013 bull market peak, which came about a year after the 1st halving, users who kept their Bitcoin on Mt. Gox, the dominant centralized Bitcoin exchange at the time, lost their crypto due to Mt. Gox getting hacked and losing 850,000 Bitcoin belonging to Mt. Gox users.

To lessen the chance of someone else losing your Bitcoin, store your Bitcoin in a wallet you control, unless you trust others more than yourself.

My Mt. Gox account creation email from 2012. Don't get Gox-ed (trust someone else to safeguard your Bitcoin - it’s historically been a bad idea).

Bitcoin Halving YouTube Video

Prefer a video explanation? Our halving video has you covered!

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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