What is cryptocurrency halving? | The heterogeneous madman

In November 2012, Bitcoin (Bitcoin -2.89%) was worth about $13.50. By mid-June 2024, the cryptocurrency’s value had risen to approximately $71,000, an increase of 526,000%. There are many reasons for its astronomical growth, but we cannot ignore the effects of the “halving”. Read on to learn more about cryptocurrency halvings: what they are, how they affect cryptocurrencies, examples of cryptocurrencies that have implemented halving, and how halving has affected the largest cryptocurrency of all.

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Overview

What is cryptocurrency halving?

Cryptocurrencies are among the most volatile investments you can make. One day, a cryptocurrency is a memetic currency worth tens of thousands of dollars; the next day, it’s a forgotten and worthless entry in yours digital wallet.

The first cryptocurrency, Bitcoin, was launched on the market in 2009. Bitcoin miners dedicate huge amounts of computing power to maintaining a blockchain and are rewarded with new Bitcoins through a work test scheme.

If Bitcoin mining were allowed to continue unchecked, the currency could suffer from the hyperinflation that occurs when too much money is printed. Founder of Bitcoin Satoshi Nakamoto, however, designed the currency to be limited to 21 million Bitcoin; 19.5 million have already been extracted.

Additionally, Nakamoto devised a process known as halving, which is the reduction of Bitcoin’s new supply by half, every 210,000 blocks recorded, or roughly every four years. The first halving took place in November 2012; the most recent occurred in April 2024.

Initially, Bitcoin miners could expect to be rewarded with 50 BTC for each successfully completed block. They currently receive 3,125 BTC. When the next halving occurs, likely in early 2028, the amount earned by miners will drop to 1.5625 BTC.

Other halvings

Other halvings

Although Bitcoin is the oldest and best-known cryptocurrency, it is not the only one that has sought to protect its long-term value through halving. Other cryptocurrencies that have implemented halvings include:

• Litecoin: The cryptocurrency halved for the first time in 2015, cutting the Litecoin (LTC -1.84%) reward from 50 to 25. This was followed by halvings in 2019 and 2023, which reduced the block reward to 6.25 LTC. The cryptocurrency is likely to halve again in 2027, when block rewards will be reduced to 3,125 LTC.
• Classic Ethereum: Not to be confused with Ethereum (ET -2.57%), Classic Ethereum (ETC -3.34%) is the result of a “hard fork” which split the original Ethereum into two parts. The larger Ethereum is based on a betting test concept that does not require huge amounts of computing power; Ethereum Classic has maintained its proof-of-work model. It is designed to reduce mining rewards by 20% for every 5 million blocks. Since its first halving (also called fifth due to the 20% reduction) in 2015, Ethereum miners have seen their rewards drop from 5 ETC to 2.01 in May 2024.
• Monk: Like the Icelandic Auroracoin, Monk (CRYPTO:MONA) was created as a cryptocurrency for a single country, in this case Japan. Introduced in 2015 as a hard fork of Litecoin, Monacoin currently has a block reward of 12.5 MONA and halves approximately every three years. Its last halving occurred in November 2023.

Investment related topics

Halve the story

Halve the story

Do halvings have a big effect on cryptocurrency prices? In the case of Bitcoin, it is quite obvious that halvings have driven up prices, at least in the short term. Looking at the history of Bitcoin, prices increased from $10.26 a month before its first halving in 2012 to almost $13.50 after the halving.

Let’s take a look at other Bitcoin halvings:

Halving of July 2016:

June 2016: $575

July 2017: $675

Halving of May 2020:

April 2020: $6,900

June 2020: $9,850

Halving April 2024:

March 2024: $65,300

May 2024: $67,000

Of course, you can expect some price appreciation whenever the supply of a valuable resource is reduced. A halving may present an opportunity for short-term gains, but there are two things to remember: Cryptocurrencies are incredibly speculative investments, and spending time in the market is always better than trying to time the market.

The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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