Have you ever wondered why people get so excited about something called "Bitcoin halving"? It's a big deal in the world of digital money, but what exactly is it?

Well, think of Bitcoin halving as a special event that happens in the Bitcoin world every now and then. It's like a scheduled update that affects how new bitcoins are made.

In this guide, we'll break down Bitcoin halving into easy-to-understand bits. We'll start by looking at where Bitcoin comes from and why it's different from regular money. Then, we'll dive into what exactly happens during a Bitcoin halving and why everyone pays attention to it. Let's get started!

Before directly jumping to bitcoin halving you need to understand its underlying technology and mining process.

Bitcoin Technology

Bitcoin is a digital currency, meaning it exists only in digital form. When you send someone Bitcoin, you're essentially sending a digital message or transaction from your digital wallet to theirs.

So, What makes bitcoin different from other digital currencies?

Well, it's the Blockchain Technology. All Bitcoin transactions are recorded on a public ledger called the blockchain. The blockchain is like a big, decentralized database that keeps track of who owns how much Bitcoin and when transactions occur. Instead of being stored in one central location, copies of the blockchain are stored on thousands of computers worldwide, making it secure and virtually tamper-proof.

Bitcoin operates on a decentralized network, meaning there's no central authority, like a bank, controlling it. Instead, transactions are verified and confirmed by a network of computers (called nodes) that work together to maintain the blockchain.

Mining

Proof of Work is a consensus mechanism used by the Bitcoin network to validate and confirm transactions. In simple terms, it's a way for the network to agree on which transactions are legitimate and should be added to the blockchain.

Now in order to validate the transactions the nodes should be incentivised as they are spending their resources as validating transactions costs money in the form of electricity.

Mining is the process through which new Bitcoins are created and transactions are verified and added to the blockchain. Miners are specialized computers that compete to solve complex mathematical puzzles, known as "hash functions." These puzzles are designed to be difficult to solve but easy to verify.

When a miner successfully finds a solution to the hash function, they broadcast it to the network for verification. Other nodes in the network then verify that the solution is correct by running the same hash function on the same input. If the solution is valid, the block of transactions is added to the blockchain, and the miner who found the solution is rewarded with newly created Bitcoins, as well as any transaction fees associated with the transactions in the block.

The halving

Bitcoin's creator, Satoshi Nakamoto, designed the cryptocurrency with a limited supply of 21 million Bitcoins. 

Bitcoin halving is an event programmed into the Bitcoin protocol that occurs approximately every four years or after every 210,000 blocks mined. During a halving event, the reward that miners receive for adding new blocks to the blockchain is cut in half. This reduction in the block reward has a significant impact on the rate at which new Bitcoins are created and introduced into circulation.

The first Bitcoin halving occurred in November 2012, reducing the block reward from 50 BTC to 25 BTC per block. Subsequent halving events took place in July 2016 (reducing the reward to 12.5 BTC) and May 2020 (reducing it further to 6.25 BTC) and the next one is expected in April 2024.

Impact on price

Bitcoin halving events have a direct impact on the supply of new Bitcoins entering circulation. With the reduction in block rewards, the rate at which new Bitcoins are created slows down, leading to a decrease in the rate of supply growth. This scarcity is often cited as a bullish factor for Bitcoin's price, as it reduces the selling pressure from miners. Historically, Bitcoin prices have experienced significant increases in the months following halving events, although past performance is not indicative of future results.

Image from coinmarketcap

In conclusion, Bitcoin halving is a fundamental aspect of the cryptocurrency's design, serving to regulate its supply and maintain its scarcity over time. With each halving event, the rate of new Bitcoin creation slows down, leading to a gradual reduction in the available supply. This scarcity, combined with increasing demand and adoption, has historically contributed to significant price appreciation and market dynamics. As we look ahead, the final halving event, projected to occur in the distant future, underscores Bitcoin's deflationary nature and its potential to serve as a store of value in the global financial landscape. While the journey towards the last halving may span decades, its implications continue to shape the evolution of Bitcoin and the broader cryptocurrency ecosystem.