The 210,000 Block Cycle: Bitcoin’s Hidden Halving Mechanism
Every 10 minutes, a new block is added to the Bitcoin blockchain by a global network of miners competing to solve complex cryptographic puzzles. The miner who successfully finds the solution signs the new block and earns a block reward — currently 6.25 bitcoins — as an incentive for supporting the network.
But this reward amount was not always 6.25 bitcoins. In fact, it gets cut in half every 210,000 blocks due to a rule hardcoded into Bitcoin’s source code known as the halving (or “halving”). Here’s why this event sparks a battle royale between miners.
A Built-In Monetary PolicyWhen Satoshi Nakamoto created Bitcoin, one of their innovations was implementing a fixed and predictable monetary policy that steadily decreases the rate of bitcoin introduced into circulation over time through the halving events. This contrasts with fiat currencies that can be printed without limit by central banks.
Some key aspects of Bitcoin’s monetary design:
The initial block reward was 50 BTC back in 2009The reward gets cut in half every 210,000 blocks, or roughly every 4 yearsThis will continue until the last bitcoin is minted in approximately the year 2140By that point, the block reward will reach zero. But miners don’t need to panic — they will still earn transaction fees as their incentive to keep mining blocks and securing the network.
The Implications of Halving the Mining RewardReducing the block reward by 50% has profound implications for both the security and valuation of the bitcoin network:
For Miners:
Revenue gets cut in half overnightProfit margins drop significantlyLess efficient miners get forced out as mining difficulty stays constantTriggers industry shakeout and consolidation into more influential mining poolsFor Bitcoin:
New issuance rate of bitcoin is suddenly shockingly lowSells less supply pressure, more scarcity kicks inHistorically prefaced enormous bull runs (as much as 8000% gains after past halvings)So in many ways, the halving destabilizes the network, setting off a battle on multiple fronts, from operational security to the very value of bitcoin itself.
The Previous Halving BattlesTo date, Bitcoin has undergone three block reward halvings:
November 28, 2012 — Block #210,000 The first halving reduced the mining reward from 50 to 25 bitcoins. In the months after this event, bitcoin’s price skyrocketed from about $12 to over $1,000 by December 2013.July 9, 2016 — Block #420,000 The second halving reduced the reward from 25 to 12.5 bitcoins. Bitcoin’s price responded similarly later that year, rocketing from around $650 to nearly $20,000 by December 2017.May 11, 2020 — Block #630,000 Most recently, the third halving reduced the block reward to 6.25 bitcoins. The battle is still unfolding for this one as bitcoin continues hovering in the range of $16,500 — $22,000 at the time of this writing after peaking above $68,000 in November 2021.Gold Rush for Pre-Halving CoinsIn the months leading up to a halving, we typically see a frenzied “gold rush” from miners anticipating their revenue getting cut in half. They go all out trying to accumulate as many full reward bitcoins as they possibly can before the halving day.
This battle for pre-halving bitcoins reaches a fever pitch, with all miners trying to cram in the last hashes and extract each final full-sized reward.
Then the halving hits. The very next block mined after the cutoff earns just half the reward. Supply evaporates. For miners, it’s like falling off a cliff into financial uncertainty. Meanwhile, hype surrounding the halving among bitcoin investors heats up.
Upgrading to SurviveThe shaking out of inefficient miners starts right away after the halving. Less agile operations struggle to pay their bills as their profitability sinks fast.
Many older-generation mining rigs powered by graphics cards become obsolete almost overnight compared to newer, more specialized hardware like application-specific integrated circuit (ASIC) miners now required just to turn a profit.
Mining companies face some tough battles if they have any hope of surviving:
Sell off their accumulated bitcoin reserves to keep their lights on a bit longerUpgrade to next-gen mining rigs with better efficiencyFind cheaper sources of electricityFreeze or eliminate growth plansAccording to Bitcoin mining company Luxor’s Hashrate Index, the bitcoin network’s total hashrate (a measure of computing power contributed by miners) indeed stalled for six months following each of the last two halvings before resuming growth again.
Consolidation of PowerMost mining companies cannot weather this post-halving storm for long before getting forced to fold, unleashing waves of consolidation across the industry.
Their rigs eventually get powered off and/or snatched up on the cheap by their better capitalized competitors. Networks of mining pools end up becoming more centralized around a few major players.
Case in point — in September 2014, mining pool GHash.IO briefly controlled an alarming 55% of the total Bitcoin network at one point following the first halving event before bitcoiners united to avoid a 51% attack.
Also after the 2016 halving, many small Chinese mining companies got wiped out, allowing bigger firms like Bitmain to dominate with 70–80% of the network.
This increasing consolidation tips the scales of network control in favor of a select few powerful mining pools. With so much hash power concentrated into their hands alone, concerns always emerge that they could theoretically compromise network security if they wanted to with a 51% attack. So far though, this threat has not come to pass as these major pools have too much self-interest vested in protecting Bitcoin.
Supply ShockWhile miners panic about their operating margins, cryptocurrency investors start salivating over the impending supply squeeze from the halving.
The daily supply of new bitcoins created gets cleaved further and further with every halving event. Instead of 1200 new coins minted per day, that drops to just 900, then 450, now only 300 per day and decreasing.
Yet demand for bitcoin keeps rising over the long-term, creating increasingly large supply-demand imbalances with each halving.
Basic economic theory dictates that when demand is high and supply sinks, prices tend to rise. The combination of surging adoption plus disappearing new supply is like rocket fuel for bitcoin’s valuation during every post-halving cycle.
No other asset in history has a transparent four year cyclical monetary policy hard-coded into its existence like Bitcoin does. This makes the halving one of the most powerful recurring price catalysts for seasoned crypto investors who have been awaiting these supply shocks to kick off historic parabolic bull runs.
The Battle Rages OnNine months after the third halving in 2020, miners had only accumulated just over 75% of the total bitcoin supply.
So the fight continues as they compete every 10 minutes for the scraps from that ever-shrinking block reward, at least for the next 119,000 blocks until the next halving battle.
But the biggest battle seems to come after the halving when all market forces converge to revalue this truly exceptional monetary network higher as adoption spreads. Because in the world of Bitcoin, every 210,000 blocks brings a fight — over security, distribution, economics and the very value of money in the digital age.
ConclusionThat covers the dynamics at play during Bitcoin’s block reward halving events and why it sets the stage for battles between miners as well as explosive bull runs.
As the saying goes, “Every 210,000 blocks, a new game begins.” So buckle up and get ready to watch the next halving battle unfold in 2024!