One of the most unique aspects of Bitcoin is the halving cycle. You may not know what the halving cycle is, but it’s a very interesting characteristic that can have an effect on Bitcoin’s price. Let’s cover what really makes Bitcoin deflationary, and why some people are rushing to buy as much Bitcoin as possible!
How Does Bitcoin Mining Work?
Let’s back up a bit to examine Bitcoin’s structure. The Bitcoin Blockchain is made up of “blocks”, which are files that contain 1 Megabyte of transaction records. Miners compete to add to each block by using specialized computers and producing a hash, which encodes the data and finishes the block. When a miner finishes a block, they are rewarded in Bitcoin.
How Much is the Reward?
When Bitcoin was initially established, the reward for solving one block was 50 BTC. The first Bitcoin halving occurred in 2012, and the block reward was reduced to 25 BTC. This pattern will carry on, so the reward was 12.5 BTC in 2016, 6.25 BTC in 2020, and then will be 3.125 BTC in 2024, and continue on until the reward is zero in approximately 2140.
Why Does Halving Occur?
Halving occurs because the Bitcoin blockchain is programmed to halve rewards every 210,000 blocks, or about every 4 years. Since the amount of Bitcoin rewarded decreases over time, it gradually makes Bitcoin more rare, and thus more valuable. The price of Bitcoin has historically increased after each halving because of its fixed supply and lower issuance rate.
Bitcoin’s fixed quantity and release system is one of the characteristics that make it very unique as the first cryptocurrency. Since the total amount of Bitcoin (21 million) can never increase, it is labeled as a deflationary currency, and sometimes called “digital gold”. Some people see this as an opportunity to pick up as much crypto as possible while the halving reward is still relatively large, so they have more when the supply decreases over time. If you’re looking to buy some Bitcoin for yourself, check out our locations page to find a RockItCoin Bitcoin ATM near you!