In short, this is an event in which the creation speed of new bitcoins is 2 times reduced. It happens every 4 years.
As you know, the offer of classic bitcoin is limited to 21 million coins. Once it is reached, it will no longer be possible to mine this cryptocurrency. This is precisely what ensures the fact that bitcoin can be considered as “digital gold” because its reserves will be depleted someday.
At the exact moment, about 18 million BTC are in circulation, which is approximately 85 percent of the total possible amount. However, this does not mean that the limit will be reached in the near future. The fact is that a special function is embedded in the blockchain protocol - bitcoin halving, in which, after every 210 thousand mined blocks, production is reduced by 2 times. So the more time passes, the more difficult the extraction. This is achieved by reducing the remuneration for mining by 2 times. That is, to get as much as before, you have to work 2 times longer.
This is the amount in BTC that the miner receives for each new block added to the blockchain. Blocks are needed to store all data about transactions carried out in the blockchain. Their size is about 1mb each, which at the moment allows you to contain information about 500 different transactions carried out in a fairly short period of time.
And when the miner successfully checks/extracts a new block, he is entitled to a reward. Because he spends his time, electricity and machine resources to solve this complex mathematical problem.
How things are working now
When the Bitcoin blockchain was launched back in 2009, miners received 50 bitcoins for each block mined. So before the first halving, which happened in November 2012, a total of 10.5 million BTC was mined. The block reward began to be 25 bitcoins.
Based on the current value - approximately 365 thousand dollars per block. A bit overpriced, isn't it? However, at the start of the project, it was not clear at what speed the network would develop and whether it would be at all. Plus, it was necessary to invest quite heavily in machine power in order to simply maintain the system in working condition. Not to mention the fact that before, bitcoin also cost much less.
Seriously, a lot less. The highest mark is $31 in June 2011. But this terrible "financial bubble" burst, so by the end of the year the price fell to the usual 2 dollars. However, even this turned out to be enough for those who came to the blockchain in the early stages to begin to feel the real benefits of their work - all according to the Ponzi scheme.
The next reduction occurred on July 6, 2016 - together with the extraction of block number 420,000. Now the reward has become even less - 12.5 BTC. The third bitcoin halving will reduce it even more - to 6.25. So each new block will bring about 45 thousand dollars to its miner.
When will the next contraction occur?
This date is quite difficult to determine, since the rate of generation of new blocks is not constant. On average, this is 1 block every 10 minutes, but the process can slow down significantly. Tentatively, based on current performance, the new Bitcoin Halving can occur either on May 14 or May 18, 2020.
As for the last reduction, it will tentatively happen in 2140, when the last BTC will be mined. By that time, mining will cease to be profitable - you will only hope for the fees paid on completed transactions.
Will miners retain interest?
Not everyone. At the current moment, most of the blocks are mined at the level of “industrial giants” - such as the Chinese Bitmain, which back in 2018 cost about $ 12 billion. True, thousands of machines work there, equipped with applied integrated circuits, which in their power do not go to any comparison with graphic cards used by private individuals.
However, with a further reduction in remuneration, profits will no longer cover operating costs, so large companies will be forced to leave this market and switch to something else. And the role of associations of small producers will gradually increase. The market will become a little less decentralized but still retain its relevance.
How will this affect the price of bitcoin?
If there is demand, then the price will increase. That, at least, has happened several times already. In the November 2012 mentioned before, after the first halving, the price increased from $ 11 to $ 12, and by November 2013 it had already reached $ 1,038.
Then there was a fall, but not to the initial level. So a month before the second reduction, a pronounced bull trend started again. From 576 on June 9 to 650 on July 9, 2016. And with another acceleration to 2526 by July 9, 2017.
Will the price go up again? Experts believe that a small initial leap has already taken place, but there are no reliable ways to verify this - just evaluate the after-fact. Nevertheless, there is a chance that risk-seekers will try to play again at the alleged increase. So there is a serious chance that from April 2020 the price of bitcoin will start to rise again.