On 12th January 2009, Satoshi Nakamoto sent the first Bitcoin transaction to Hal Finney in a move that became history. At the time, one block used to produce a total of 50 Bitcoins. That’s the amount he sent to Hal, although for a quirk in the system, that amount has never been available for being spent. The possible explanation is that Nakamoto never wanted it to be spent but create a test transaction instead.
Still, by protocol, the number of bitcoin produced in a block has to be halved every 4 years. Therefore we had a halving to 25 BTC block in 2012, then 12.5 in 2016 and in 2020, exactly 365 days from now, we’ll have a 6.25 BTC block. This process will continue until the last bitcoin is mined in 2140.
Why does this happen?
Let’s start with understanding inflation: fiat currencies can be issued with no limits creating a system in which their offer is not rare but abundant. The result is inflation, which devalues any abundant currency and as a consequence, its purchasing power weakens over time.
Inflation has affected all major and minor currencies at some point in time. The US dollar for example, which over the years has decreased in value. Countries like Germany in 1923 and Hungary in 1945 suffered Hyperinflation. Germany, in order to meet war obligations, printed more Marks to buy foreign currency, triggering a further drop in Marks, then necessitating more printing and creating a vicious spiral. Hungary had a similar destiny after the Second World War.
Inflation issue is resolved in Bitcoin with two major measures
- Satoshi Nakamoto set a limit to the number of bitcoins that will exist (21 million)
- He controlled supply from the start by restricting mining with the bitcoin halving event.
Had he not taken these two measures, Bitcoin would inflate just like any other fiat currency. Bitcoin would be mined with no limit until its value dropped so much that it would be worth nothing.
The result is what it’s commonly known as HyperBitcoinisation or Bitcoin deflation, meaning that its value grows over time as it’s been the case so far since its creation.
We have repeated numerous times how from basically nothing, Bitcoin is worth $8,000 at present, making it the most valuable of all assets in 2019.
So what to expect from the next Bitcoin halving?
If history repeats itself, then we can expect a major increase in Bitcoin price with a strong possibility that it reaches a new All-Time High. But many expect the price to be growing on the way to the event therefore within the next year.
Look at what happened with the previous two bitcoin halving events of 2012 and 2016, the biggest rises actually occurred after. From $32 in February 2012, Bitcoin rose to $238 in April 2013 and dropped back to $69 in July of the same year before reaching a new ATH of $1122 in November.
In 2016, on the way to the second halving that occurred in July, Bitcoin was trading between $400 and $700 before reaching nearly $1000 in December and making history with ATH reached several times in 2017 up to the $20K value.
As usual, nobody knows what will happen for certain but the momentum is growing and the new halving in one year time exactly will make Bitcoin scarcer. This is enough for some to speculate BTC might be expected to grow to new ATHs in the months past the halving and toward 2021. That’s more likely the date to watch out for.