Early next week, Bitcoin is about to experience its third-ever halving, a hugely important event that could shift the balance of power within the network. Historically the event, also called the halvening, drove the price of Bitcoin up, especially in the long term. There are also certain dangers associated with this event — though you probably don’t need to worry too much.
So what is the halving, and what do Bitcoin owners need to know about it? Read on.
What is it?
Bitcoin’s network is run by miners, users who run special software on powerful, specialized computers, solving an increasingly complex math problem. Every time the math problem is solved, a new “block” in Bitcoin’s blockchain is created and verified by all the other miners. Each block contains the latest batch of transactions on the network. Once a new block is found, the math problem is replaced by a harder math problem, and the cycle begins anew.
The system ensures that the miners keep running the Bitcoin network by giving them a good incentive to do so: The miner who finds a new block is rewarded with bitcoins. The miner (typically a massive pool of many individual machines put together) has spent a ton of electricity and processing time to find the block, but the reward typically makes up for it. Currently, the reward per block is 12.5 BTC (around $115,000 at writing time).
WATCH: What you need to know about Bitcoin halving
This system has worked tremendously well in the decade or so that Bitcoin has been running. But there’s a problem: As Bitcoin becomes more popular and its price rises, more and more miners flock in to reap the rewards.
Satoshi Nakamoto, the pseudonymous creator of Bitcoin, anticipated this, so he built in several safety features to keep bitcoins from being mined too fast. One is the increasing difficulty of mining: as the total computing power of miners increases, it gets more and more difficult to solve the math problem that yields a new block.
Then there’s the halving. Every 210,000 blocks, miner rewards for finding a new block are, well, halved. In 2009, the reward was 50 BTC per block. In 2012, it got cut in half, and in 2016, it was cut in half once again to 12.5 BTC per block.
Now, on May 11 (the date is probable but not exact as it depends on how fast Bitcoin’s blocks are mined), the halving will cut the reward to 6.25 BTC pe
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