The fourth Bitcoin halving.
This magical moment comes along once every four years, give or take. But what is it, and why is it so important?
First, let’s touch on how Bitcoin works, very briefly. Here is the long-story-short:
If you want to send bitcoin, you start a transaction from your wallet. That transaction gets sent out to “nodes” on the network and is placed in something call the mempool.
Bitcoin miners look at the mempool, take a bunch of those transactions, bundle them together, and run them through an algorithm in hopes that the output is a number that meets a certain criteria. Don’t worry about this for now, but the Bitcoin software determines that criteria and the miner just has to find the number.
The first miner to find that number “wins” and gets to group all of those transactions into a “block” and append it to the end of the Bitcoin blockchain. The blockchain is simply the ongoing ledger of Bitcoin transactions since the network began.
When a miner wins and adds the block, they get a reward (called the block subsidy) for doing so - otherwise, why expend lots of expensive energy running specialized computers to find a block?
Ok, so here is where the halving comes in.
When the first Bitcoin blocks were mined back in 2009, the subsidy/reward paid to the winning miner was 50 bitcoin. Then, after 210,000 blocks had been mined, the subsidy was automatically slashed to 25 bitcoin: the first halving.
Since then, we have had two additional halvings, one from 25 to 12.5 bitcoin and the next from 12.5 to 6.25 bitcoin. It takes approximately four years for 210,000 blocks to be mined (at an average of 10 minutes between each block). The next halving is in a couple of days.
So, why is the halving a big deal?
First, the halving is Bitcoin’s way of trending its supply issuance toward zero: it is what ultimately will cap the number of bitcoin at 21 million. This absolute digital scarcity is a large part of what makes Bitcoin enticing as a form of money. There is only so much to go around, and people tend to assign higher value to rarer things.
Second, the halving is pre-programmed and happens like clockwork. No intermediary is required, nobody has to flip a switch or sign off on the decision, it just…happens. There is an elegance to the Bitcoin protocol that can’t be overstated, and each time a halving goes off without a hitch, confidence in the network increases and more people become assured of its resilience.
Third, the halvingis part of Bitcoin’s pre-known and therefore predictable monetary policy. You don’t have to read between the lines of central bankers’ speeches. You don’t have to gauge market sentiment about interest rate hikes or cuts. You don’t have to buy a crystal ball or brush up on your tarot card reading skills or pray for divine foresight… you can justknowwhat will happen.
Professional wealth advisors today have becomes so accustomed to the maniacal prognostication of future central bank policy. Most others simply outsource that thinking to one of these advisors, because they lack the time, expertise, or inclination to try keeping up.
But this is far from a natural state of affairs. The US central bank didn’t even exist for the first half of our nation’s history, and has since overseen effectively all of the major market downturns and severe inflationary periods.
As is often the case with government, we’d be better served if we were underserved.
On the other hand, Bitcoin’s known, predictable, and unemotional monetary policy - its halving included - provides reliability that could enable millions of investors and savers alike to make long-term decisions with confidence that they can know what to expect.
The number of people who understand Bitcoin, much less its periodic “halvings,” is small but growing.
When the simplicity, predictability, and sheer genius of Bitcoin’s design become better and more broadly understood, all bets are off. Might be worth getting some now while you can purchase it instead of working for it.