"Bitcoin Halving Day" is Coming? Are You Ready?

What happens when the creation of new Bitcoins will be cut in half?

You have to mine for BTC. Getty Images

There’s an important day coming soon for those in the Bitcoin world.

It’s “halving day”!

That’s the day that the amount of new Bitcoins being mined will be cut in half.

If you’re interested to find out exactly when this occurs, well there’s a website for that. Actually, there’s a few of them.  But, the reality is that no one actually knows exactly when it will occur.

So, what is “Bitcoin halving day”?

Bitcoin’s goal is to create a finite supply

Let’s take a look at why there’s a need for “halving” of the amount of Bitcoins being mined.  It’s all about controlling the supply of Bitcoin.

In the United States, we have the luxury of simply printing as much money as we like.  This means that the supply of money in this country is increasing.  This factors into inflation, increased debt and the interest in putting new (and worthy) people onto our printed money.

With Bitcoin, it’s different. Bitcoin is produced through mining and this mining utilizes a computer program (the Bitcoin generation algorithm), that controls the creation of new Bitcoins. At some point in time, there will be a finite amount of Bitcoin created and all mining of new Bitcoin will cease. This will create a finite supply of Bitcoin. 

With a finite supply, the amount of demand for Bitcoin will be the central driver for the value of the currency.

  At that point, the total amount of Bitcoin at "completion" will be 21 million Bitcoins and no new ones will be created.

For many people in the Bitcoin community, the ability to be moving closer to “completion” of the Bitcoin process is a major achievement and validation of the concept and its impact on society and the financial world.

  After all, if Bitcoin was actually dead and of little value (as many skeptics think), the “completion” of the Bitcoin supply would be a non-issue and perhaps, it may not have even occurred if there was little interest in, or need for, Bitcoin.

No one actually knows when the last Bitcoin will be created, just as no one knows exactly when the “halving” of Bitcoins will occur (but the ‘countdown’ websites are sort of neat). This all depends on the mining process.  However, according to those who track this stuff, the “completion” of Bitcoin is estimated to occur in 2140

What is “Bitcoin halving”?

When a Bitcoin miner creates a Bitcoin through their use of the algorithm, they are rewarded with a new “block” of the currency.  The developers and maintainers of the Bitcoin algorithm took into consideration the amount of mining power and capacity that may be available in the network to provide “stability” to the creation process and to prolong the creation process to “completion”.

Thus, the algorithm actually adjusts to keep the block creation process constant over periods of time as it heads towards the “completion” total of 21 million Bitcoin. 

Built into the algorithm is the ability for this “block creation” process to be decreased 50% at four-year intervals (or every 210,000 blocks).

  Currently, miners are rewarded with 25 BTC per block created.  This amount has been steady for the last four years, and 2016 is estimated to be the year when that reward will be decreased to 12.5 BTC per block. 

That’s “Bitcoin halving”.

Will “halving” be good or bad for the value of Bitcoin?

The fact that the supply of Bitcoin will be cut in half at some point in 2016 is getting many people thinking that this decreased supply of Bitcoin will lead to an increase in the value and price of Bitcoin. 

The first (and most recent) “halving day” took place in 2012 and it had no immediate impact on the price of bitcoin (it was valued at $13.40 per BTC then). However, the price of Bitcoin is now around $450 and has gained more interest and usage by many since four years ago.

The estimates for the value of Bitcoin vary greatly, but the one thing that will be known for sure is that at some point in time, there will only ever be 21 million Bitcoins created.

What we’re doing with those Bitcoins and what they’ll be worth in 2140 will probably be unknown by those of us reading this. 

That is of course, if Bitcoin is still around then.