Halving

A halving is a pre-programmed event in certain blockchains — most famously Bitcoin — where the reward that miners receive for adding a new block to the chain is cut in half. Bitcoin was designed with a fixed supply of 21 million coins, and the halving mechanism is the primary way that supply is controlled over time. When Bitcoin launched in 2009, miners received 50 BTC per block. In 2012 that dropped to 25, in 2016 to 12.5, in 2020 to 6.25. Bitcoin halvings occur approximately every 210,000 blocks, or roughly every four years.

By steadily reducing the rate at which new Bitcoin enters circulation, the protocol mimics the diminishing supply of a precious resource like gold. Early miners were rewarded richly for taking on the risk of participating in an unproven network. As the network matured, the rewards decrease while transaction fees paid by users become a larger part of miner income. Halvings are closely watched events because they directly affect the economics of mining and have historically been associated with significant price movements.

Example: Imagine a gold mine programmed to cut its output in half every four years. In the first years, miners pull out 50 kilograms a day. Then 25, then 12.5, and so on. The total amount of gold that will ever come out of the mine is fixed, and the rate at which it is extracted slows predictably over time. Bitcoin’s halving works on exactly this principle.