Every few years, the number of Bitcoins awarded to miners is cut in half in order to prevent inflation eroding the value of Bitcoin. In May 2020, the mining reward for creating a block in the Bitcoin blockchain halves to 6.25 BTC (around $43k).
There are only ever going to be 21 million Bitcoin in circulation – once the limit gets reached, that’s it; no more BTC to be mined. Satoshi (whoever he/she was/is), set a logarithmic scale for the dates for the halvenings to happen on. So whilst 80% of all Bitcoin supply has already been mined in its first 10 years, the last Bitcoin won’t be mined until 2140. This is all to encourage sustainable growth. Imagine if the full 21 million Bitcoins were issued right at the get-go. There’d be no incentive for the value to rise as there’d be a huge supply, outweighing demand.
So we’ve ended up with over a century of guaranteed incentive for miners to make money, and for the market to figure out the worth of Bitcoin.
It’s interesting to note that after the LAST halvening event in 2016, there was no big drop in hashrate. This means that miners still think its a worthwhile thing to do. Improvements in chip technology should bring better power ratings, efficiences and price, whilst if hashing power DOES leave the network, the network should balance itself as the difficulty of mining a new block will decrease. Thus less hashing power and less electricity needed.
Price gains after Bitcoin halvening?
In the year after the first halvening in November 2012, the price of Bitcoin went from around $10 to $1000. In July 2016, the price had almost tripled in the year leading up to the halvening, and then famously peaked in 2017 at nearly $20k.
With a sample size of only two it’s unscientific to predict anything like a price rise as happened with the last two halvening events.
It’s anybodies guess how the market will react, or even if they’ll react at all, but Cryptocurrency markets are often very events driven, so all eyes are on the lead up to May 2020.