What does Bitcoin’s “four-year halving” mean?

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

01
What is the “four-year halving”?

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

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

1. Initially, 50 bitcoins are generated every 10 minutes (the 10-minute interval is guaranteed to be stable by the algorithm);
2. After every 210,000 times, the single output of Bitcoin will be halved, from 50, 25, 12.5... and so on, until the total amount reaches 21 million.

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

210000÷(365*24*6)

Note: Because it is generated every 10 minutes, the number of times per year is 365*24*6

The answer is exactly 4 (years), which is the origin of the saying "half the time in four years".

According to the halving rule, the total output will be halved every four years, and this decay is very rapid. 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 was the four-year halving rule designed?

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, Vitalik Buterin expressed it this way:

Bitcoin is designed this way to control inflation… You can also compare this rule with gold. The total amount of gold on earth is fixed, and it is getting harder and harder to mine. 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 trends over the past century

03
What does the halving have to do with Bitcoin’s price?

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

Figure: The first halving on 2012/11/28 (UTC time)

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

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

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

Some people insist that the price of Bitcoin is strongly correlated with the halving, and believe that the price will rise, and that the rise will occur between 3 months and 1 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 from capital institutions, etc., which may also be important reasons for price changes.

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

04
summary

Bitcoin's four-year halving is the result of its production rule design. Compared with the relationship between the four-year halving and the change in Bitcoin prices, 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.

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