One must first be familiar with the fundamentals of cryptocurrency creation in order to comprehend how the Bitcoin halving functions. A decentralised mechanism called mining allows users to create bitcoins. Miners use powerful computers to solve cryptographic puzzles that verify and authenticate transactions on the blockchain, the public log of bitcoin transactions. They get compensated in the form of freshly minted bitcoins in exchange. A rivalry of sorts exists in bitcoin mining. In essence, miners compete to be the first to upload new blocks to the blockchain. They get a specific quantity of fresh bitcoins as payment for each block contributed. The block reward was decreased in half at regular intervals by the Bitcoin's creator. Every 210,000 additional blocks contribute a 50% reduction in the payout for mining a block. Since it presently takes four years to add that many blocks, Bitcoin has been halving about every four years. Theoretically, there won't be any more bitcoins produced beyond the first 21 million. The number of Bitcoins is capped at 21 million, just like the supply of gold on Earth is finite. When it comes to the internet, you could practically compare Bitcoin to a natural resource. That is why it is referred to as "digital gold."
The halving strategy was incorporated into the Bitcoin mining algorithm to fight inflation by preserving scarcity. Theoretically, the slower rate of supply of Bitcoin means that, in the event that demand stays the same, price will rise. All Bitcoin transactions are verified by a decentralised network of validators through a process known as mining. When they are the first to utilize intricate math to add a collection of transactions to the Bitcoin blockchain as part of its proof-of-work method, they are rewarded with 6.25 BTC. 6.25 BTC is now worth around $148,842.50, which provides miners with a respectable incentive to continue contributing blocks that keep Bitcoin transactions flowing smoothly. These blocks of transactions are added typically every 10 minutes, and also the Bitcoin code mandates that when 210,000 blocks are generated, the incentive for miners is cut in half. That occurs approximately every four years, usually during times of increased volatility in the price of bitcoin. Another theory for the rationale behind Bitcoin halving is that the cryptocurrency's creator wanted to have a larger proportion of coins being generated early on to entice people to join the network as miners.
Data from the past reveals a connection between price hikes for bitcoin and its halves. Of course, a wide range of factors, not simply price reductions, impact pricing.
· First halving: In November 2012, at the time of the first halving, the price of Bitcoin was around $11. It multiplied one hundredfold in a year.
· Second halving: A second halving was instituted in July 2016 after the Bitcoin network reached the milestone of 420,000 blocks. For a few months, the price of Bitcoin fluctuated between $500 and $1,000 before rising to almost $20,000 by December 2017.
· Third halving: In May 2020, the third halving took place as the cryptocurrency saw another bull run. Bitcoin was trading at roughly $9,000 at the time of this halving. By year's end, it had increased to almost $30,000.
The halving cycle will end on year 2140 and as of now Only three of the total 64 scheduled halvings have happened.