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Today, let’s talk about Halving of Bitcoin.
“Bitcoin Halving” refers to specific events where the reward for mining Bitcoins is cut in half. Let’s unpack that a bit.
Transacting with Bitcoin is only possible, because so-called miners run complicated computer algorithms to validate every transaction. This process is called proof of work, and we recommend you listen to our episode on that. But in summary, you need to understand that it takes a lot of energy and hardware to mine Bitcoin. That’s why the system has to pay rewards to miners. Those rewards currently pay 6.25 Bitcoins for validating a chunk of transactions, also called a block.
When halving happens, the reward per block gets cut in half. At that point it will be half of the current 6.25 Bitcoins, dropping it to 3.125 Bitcoins, hence the name. Halving happens every 210,000 mined blocks, meaning the next halving will happen sometime in 2024.
So, why is Halving built into Bitcoin? Because, by design, the blockchain has a total amount of 21 million Bitcoins that can ever be created. But not all of those are in circulation, currently about 2 million are still set aside for mining rewards. Now, imagine you would keep giving miners the same rewards forever - eventually you’d run out of rewards. Halfing slows this process down.
And that’s halving! And in the next episode we’ll talk about why Bitcoin was designed that way and if halving is a good or a bad thing.
Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.
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