In the world of digital currency, Bitcoin has always been the focus of much attention. One of the most eye-catching phenomena is the rule that Bitcoin is halved every four years. What does this phenomenon mean? Let's explore it in depth.

 Bitcoin supply rule

The total amount of Bitcoin is limited. According to its design, the total amount of Bitcoin will never exceed 21 million. In order to gradually issue Bitcoin and control inflation, the Bitcoin network has set a rule of halving every approximately four years, that is, the mining reward of Bitcoin will be halved once every 210,000 blocks. This means that the growth rate of Bitcoin supply will gradually slow down until it eventually reaches the upper limit of 21 million.

This supply rule makes Bitcoin scarce, similar to precious metals such as gold, so it is regarded as a safe-haven asset by many people. Each halving means that the output of Bitcoin slows down, which also has a certain impact on the value trend of Bitcoin.

 The impact of previous halvings on Bitcoin prices

Historical data shows that each halving of Bitcoin is accompanied by price fluctuations. The first halving occurred in 2012, when the price of Bitcoin rose from a few dollars to about $100. The second halving occurred in 2016, when the price of Bitcoin rose from a few hundred dollars to about $2,000. This phenomenon is also called the "halving market" by many investors.

In May 2020, Bitcoin ushered in the third halving. At that time, the price of Bitcoin fluctuated before and after the halving, but then gradually rose, and finally exceeded $60,000 in early 2021. This once again verified the impact of Bitcoin halving on the price. Although it is not an absolute rule, it has triggered market speculation and discussion about the future trend of Bitcoin.

 The logic behind Bitcoin halving

Why does Bitcoin design a rule of halving every four years? There are actually some economic logics behind this. First, halving can effectively control Bitcoin's inflation and avoid excessive issuance leading to currency depreciation. Second, halving also encourages miners to continue to participate in the maintenance of the Bitcoin network because they can obtain Bitcoin rewards through mining. This incentive mechanism helps to ensure the security and stability of the Bitcoin network.

In addition, Bitcoin halving has also raised concerns about deflation. Some people believe that as the Bitcoin reward is halved, the income of miners will also decrease, which may cause some small miners to exit the market, thus affecting the decentralization of the Bitcoin network. However, there are also views that the halving of Bitcoin will further highlight its scarcity, thereby driving up prices and attracting more investors and miners to participate.

 Future trend of Bitcoin

There are different views on the future trend of Bitcoin. Some people believe that the halving of Bitcoin will boost its price, and there are even predictions that the price of Bitcoin may exceed $100,000 or even higher. Others are worried about the bubble of Bitcoin prices, believing that its price has deviated from its true value and there is a greater investment risk.

In any case, as a global digital currency, the future development of Bitcoin is still full of uncertainty and challenges. Factors such as technological development, regulatory changes, and market fluctuations will have an important impact on the trend of Bitcoin. Investors and miners need to pay close attention to market dynamics, look at risks rationally, and make wise decisions.

 Conclusion

The Bitcoin law of halving in four years is not only an economic phenomenon in the field of digital currency, but also a social phenomenon. It has triggered people's thinking and discussion on currency, value, and the future. Regardless of the future direction of Bitcoin, we should keep an open mind, look at investment risks rationally, and cherish the technological innovation and changes brought about by digital currency. May the light of Bitcoin illuminate our way forward, and let us witness the future of digital currency together.

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People often ask: When will the next bull market come? The most common answer is: Let's talk about it in XXXX. If you are surprised and ask why the time is so clear, you will probably get an answer like this: Because Bitcoin "halves every four years".

01 What is "halving every four years"?

As the pioneer of virtual digital currency, Bitcoin will "grow" a certain number of new Bitcoins approximately every 10 minutes until the total reaches 21 million.

So how many "grow" each time? When designing the Bitcoin production protocol, Satoshi Nakamoto followed the following two rules:

1. At the beginning, 50 Bitcoins were generated every 10 minutes (the interval of 10 minutes each time was guaranteed to be stable by the algorithm);

2. After every 210,000 times, the single output of Bitcoin is halved, from 50, 25, 12.5... and so on, until the total reaches 21 million.

According to the above rules, we only need to list the formula to get the time required for each halving (210,000 times):

210000÷(365246)

Note: Because it is produced once every 10 minutes, the number of times per year is 365246

The answer is exactly 4 (years), which is the origin of the saying "four-year halving".

According to the halving rule, the total output will also be halved every 4 years, and this decay is very fast. In fact, more than 17 million bitcoins have been produced in the ten years since the birth of Bitcoin, accounting for 83% of the total 21 million.

02 Why design a four-year halving rule?

The fundamental reason is due to supply and demand considerations. Imagine an extreme situation: if a large number of bitcoins are produced without restriction in a short period of time, then Bitcoin will inevitably become worthless due to excessive circulation.

In his article commenting on the Bitcoin production mechanism, "V God" expressed it this way:

The reason why Bitcoin is designed in this way is to control inflation... You can also compare this rule with gold. The total amount of gold on the earth is fixed, and it is becoming more and more difficult to mine now. It is precisely because of these reasons that gold has been circulated in the world for thousands of years and its value is still stable, becoming an internationally recognized medium of value exchange. I hope Bitcoin can do the same.

Gold price trend in the past century

03 What is the relationship between halving and Bitcoin price?

Countless people have tried to prove the relationship between the two. The "halving may lead to price increases" mentioned at the beginning of this article is also one of the views. What is the actual situation? Let's review the situation during the two halvings in history.

Figure: The first halving on November 28, 2012 (UTC time)

In 2012, the production of Bitcoin was halved for the first time, from 50 Bitcoins each time to 25 Bitcoins. It can be seen from the figure that the price fluctuations were not obvious one week before and after the halving time point.

Figure: Second halving on July 9, 2016 (UTC time)

In mid-2016, Bitcoin production was halved again, from 25 Bitcoins to 12.5 Bitcoins each time. The price of Bitcoin was $650 a week before the halving, and $675 a week after the halving. There was no significant change in the price of BTC before and after the halving.

Some people insist that Bitcoin price is strongly correlated with halving, and believe that the price will rise, and the rise will occur in the three months to one year before the halving. According to this conclusion, if we observe the halving in 2016, we will find that it is indeed the case. But if you broaden your horizons, you will also see that many major events occurred before the halving in 2016, such as supervision, attention from heavyweight media, participation of capital institutions, etc., which may also be important reasons for price changes.

Therefore, we cannot assert that there is a certain inevitable connection between Bitcoin halving and price trends.

Bitcoin's four-year halving is the result of the calculation of its production rule design. Compared with the relationship between the four-year halving and the change in Bitcoin price, perhaps you can pay more attention to why Bitcoin is designed this way? Why is the total amount fixed, and why is the new supply continuously reduced by halving to avoid Bitcoin being mined out quickly?

Maybe your answer is the same as ours: Bitcoin's four-year halving is designed to give Bitcoin more value.