What Is Bitcoin Halving? Definition, How It Works, Why It Matters

One of the most pivotal events on Bitcoin's blockchain is a halving, when the reward for mining is cut in half. Since 2020, the network participants validating transactions have been awarded 6.25 bitcoins (BTC) for each block successfully mined.
The next halving is expected to occur in early-to-mid 2024, when the block reward will fall to 3.125. Over time, the impact of each halving will diminish as the block reward approaches one satoshi.

KEY TAKEAWAYS

• A Bitcoin halving event occurs when the reward for mining Bitcoin transactions is cut in half.
• Halvings reduce the rate at which new coins are created and thus lower the available amount of new supply.
• Bitcoin last halved on May 11, 2020, resulting in a block reward of 6.25 BTC.
• The final halving is expected to occur in about 2140 when the number of bitcoins circulating will reach the theoretical maximum supply of 21 million.1

Basics of the Bitcoin Network

To understand a Bitcoin halving, you must first know how the Bitcoin network operates.
Bitcoin's underlying technology, blockchain, consists of a network of computers (called nodes) that run Bitcoin's software and contain a partial or complete history of transactions occurring on its network. Each full node—a node containing the entire history of transactions on Bitcoin—is responsible for approving or rejecting a transaction in Bitcoin's network. To do that, the node conducts a check to ensure the transaction is valid. These include ensuring that the transaction contains the correct validation parameters and does not exceed the required length.
Each transaction is approved individually. This is said to occur only after all the transactions contained in a block are approved. After approval, the transaction is appended to the existing blockchain and broadcast to other nodes.2
Adding more computers (or nodes) to the blockchain increases its stability and security. As of Nov. 1, 2023, there are 16,902 nodes estimated to be running Bitcoin's code.3 Although anyone can participate in Bitcoin's network as a node as long as they have enough storage to download the entire blockchain and its history of transactions, not all of them are miners.

Basics of Bitcoin Mining

Bitcoin mining is the process by which people use computers or mining hardware to participate in Bitcoin's blockchain network as a transaction processor and validator. Bitcoin uses a system called proof-of-work (PoW) to validate transaction information. It's called proof-of-work because solving the encrypted hash takes time and energy, which acts as proof that work was done.
The term mining is not used literally but as a reference to how precious metals are harvested. When a block is filled with transactions, it is closed and sent to a mining queue. Once it is queued up for verification, Bitcoin miners compete to be the first to find a number with a value less than that of the hash. The hash is a hexadecimal number that contains all of the encrypted information of the previous blocks.
Mining confirms the legitimacy of the transactions in a block and opens a new one. Nodes then verify the transactions further in a series of confirmations. This process creates a chain of blocks containing information, forming the blockchain.4
Transaction verification and immutability are the main intent behind the blockchain network and consensus mechanism. The bitcoin reward is a byproduct of the mining process that acts as an incentive to participate in securing the blockchain.

What Is Bitcoin Halving?

After the network mines 210,000 blocks—roughly every four years—the block reward given to Bitcoin miners for processing transactions is cut in half. This event is called halving because it cuts the rate at which new bitcoins are released into circulation in half.

This rewards system will continue until about 2140, when the proposed limit of 21 million coins is reached. At that point, miners will be rewarded with fees for processing transactions, which network users will pay. These fees ensure miners are still incentivized to participate and keep the network going.

The halving event is significant because it marks another drop in the rate of new Bitcoins produced as it approaches its finite supply. In 2009, the reward for each block in the chain mined was 50 bitcoins. As of October 2023, about 19.5 million bitcoins were in circulation, leaving just around 1.5 million to be released via mining rewards.5
CoinMarketCap. "Bitcoin."

When Did the Bitcoin Halvings Happen?

There have been three halvings as of October 2023:

• Nov. 28, 2012, to 25 bitcoins
• July 9, 2016, to 12.5 bitcoins
• May 11, 2020, to 6.25 bitcoins1

What Happens When Bitcoin Halves?

The term "halving" as it relates to Bitcoin concerns how many tokens are rewarded. This acts as a way to simulate diminishing returns, theoretically intended to raise demand.

Why Are the Halvings Occurring Less Than Every 4 Years?

The Bitcoin mining algorithm is set with a target of finding new blocks once every 10 minutes.6 Some blocks take more than 10 minutes; some take less. This can decrease or increase the amount of time it takes to reach the next halving goal. For example, if blocks consecutively average 9.66 minutes to mine, it would take about 1,409 days to mine the 210,000 blocks required (four years is 1461 days, including one day for a leap year).7

What Happens When There Are No More Bitcoins Left?

It is often thought that in 2140, the last bitcoin will be mined. However, if the reward is halved every 210,000 blocks, it will get smaller and smaller until one satoshi is the reward. One satoshi is 0.00000001 bitcoin—a satoshi is the lowest denomination of bitcoin and cannot be halved. So one satoshi may remain as the reward until the total amount of bitcoin equals 21 million—there could be millions of satoshi rewarded after 2140.

The Bottom Line

A Bitcoin halving cuts the rate at which new bitcoins are released into circulation in half. The rewards system is expected to continue until the year 2140 when the proposed limit of 21 million bitcoin is theoretically reached.
In 2009, the reward for each block in the chain mined was 50 bitcoins. After the first halving, it was 25, and then 12.5, and then it became 6.25 bitcoins per block as of May 11, 2020.
Bitcoin halving has major implications for its network. For miners, the halving event may result in consolidation in their ranks as individual miners and small outfits drop out of the mining ecosystem or are taken over by larger players.