What is halving - a brief reminder

Introduction

• Halving (Bitcoin halving) is a programmed event in the Bitcoin protocol, whereby the reward for miners for a new block is halved after every 210,000 blocks (roughly every four years). It is not the fee that is reduced, but the so-called block subsidy — part of the newly minted "fresh" bitcoins that enter circulation. This mechanism has been built into the network's code from day one and is one of the main distinctions of Bitcoin from traditional fiat currencies, whose issuance can be altered by central bank decisions.

Technical Mechanism: how everything is arranged under the hood:

• Simple algorithm. In the Bitcoin client source code, there is a constant subsidy = 50 100000000 satoshis, as well as the formula subsidy >> (height / 210000). Thus, every 210,000 blocks, the binary shift "divides" the amount by 2.

• Independent of hashrate. Whether the network's computational power (hashrate) increases or decreases, the time between blocks still aims for 10 minutes due to difficulty adjustments. Therefore, the average interval of 210,000 blocks remains around 3 years and 9 months.

• Time distribution. A total of 33 halvings are planned; after the 32nd, the subsidy will become < 1 satoshi, and even until 2140, the last remnants will be mined until we reach 21 million BTC.

Extended timeline of events:

• January 3, 2009. — Genesis Block. The first subsidy of 50 BTC per block was set by Satoshi Nakamoto.

• November 28, 2012. — Halving #1. Reduction to 25 BTC. At that time, around 10.5 million coins were in circulation.

• July 9, 2016. — Halving #2. Drop to 12.5 BTC. Emission slows down, and by the end of 2016, about 16 million BTC are circulating.

• May 11, 2020. — Halving #3. Subsidy 6.25 BTC. Pandemic, U-shaped recovery of equity markets, and historic bull trends in cryptocurrencies.

• April 19, 2024. — Halving #4. Current subsidy 3.125 BTC. At the time of the event, about 19.68 million BTC have been mined – over 93% of the maximum volume.

• Approximately 2028. — Halving #5. Expected decline to 1.5625 BTC. The date may shift by a few weeks depending on the dynamics of the hashrate.

(Each new "step" of issuance clearly demonstrates the decreasing rate of inflation: from 50% when the subsidy drops from 50 to 25, to 0.1% in the 2040s, when the reward will become in the tens of satoshis).

Economic logic and the goal of "reducing influx"

1. Protection from unpredictable issuance. Bitcoin creates "monetary policy without people": the rules remain unchanged without network consensus.

2. Imitation of digital "gold". Just as the supply of gold grows slower than the volume of already mined metal, the emergence of new BTC decreases, enhancing its status as a scarce asset.

3. Incentive for early participants. Early miners (and buyers) receive coins at a low-risk price; latecomers purchase a more scarce resource from them.

How halvings influenced the price: a retrospective view:

• 2012 → 2013. Within 12 months after the first halving, BTC rose from ≈ $13 to over $1000 — the birth of the first widely covered "bull run".

• 2016 → 2017. After 18 months, the price rose from ≈ $650 to $19,500, and then suddenly corrected by almost 80%. This cycle solidified the view that halving precedes multi-fold rises, but does not ensure stability without fundamental demand.

• 2020 → 2021. The corona crisis and unprecedented stimulus from the Fed led to a mass search for a "digital safe haven": the price rose from ≈ $9,000 to $69,000, and then corrected again.

(It cannot be claimed that halving guarantees growth. However, statistically, it is noticeable that the period following the event is often accompanied by growth towards achieving historic highs (ATH)).

Impact on mining and difficulty:

• Equipment profitability. At the same price of bitcoin, the gross dollar income of a miner is halved if they rely solely on the subsidy. Price increases or fees can compensate for this.

• Race for efficiency. Old ASIC devices become unprofitable faster; the industry is forced to switch to more energy-efficient chips and cheaper electricity (for instance, hydro or nuclear energy).

• Difficulty adjustment. If some miners shut down, the average block time slightly exceeds 10 minutes, but the next difficulty adjustment straightens the interval. In the medium term, hashrate usually recovers, reflecting the rising costs of BTC and market entry of new installations.

Halving and Stock-to-Flow (S2F):

The Stock-to-Flow concept was taken from commodity markets and applied in the crypto world by PlanB. Stock is the existing supply of an asset, Flow is the annual increase. After each halving, the annual influx decreases, while S2F increases:

• 2012: S2F ≈ 12 — closer to silver.

• 2016: S2F ≈ 25 — comparable to gold in the 1990s.

• 2024: S2F ≈ 110 — higher than any precious metal.

(Although the linear correlation between S2F and price has become contentious in the long run (especially after the "deviations" of 2022-2023), the model emphasizes the idea of scarcity as a factor of price pressure).

The Role of Fees: the transitional period after 2032:

• The reduction of the subsidy makes fees an increasingly significant part of the reward. Already (with the rise of Ordinals, BRC-20, and Layer-2 solutions), fees can temporarily exceed the subsidy.

• Network security. There are concerns about whether fees will be sufficient to maintain adequate hashrate. Proponents of strict monetary policy argue that at a price of hundreds of thousands of dollars, even fractions of BTC in fees will provide miners with comparable income.

• Mempool and transaction competition. The smaller the subsidy, the more sensitively users react to the cost of including transactions in a block. This encourages the development of off-chain solutions like the Lightning Network and state channels.

Comparing Bitcoin with other cryptocurrencies:

• Ethereum (after the Merge). Transition to Proof-of-Stake reduced issuance through burning part of the fees (EIP-1559). Informally, this is called "ultrasound money", although the supply depends on transaction volume rather than a programmed "divide by 2".

• Litecoin. Uses a similar halving cycle, but every 840,000 blocks (≈ 4 years). The market effect is less noticeable due to lower liquidity.

• Monero. Instead of sharp jumps, it has exponential tail emission — after the Maya in 2022, the emission remains stable at ≈ 0.6 XMR per block forever, providing a minimum incentive to miners.

(This diversity shows that "hard" or "soft" reductions in supply is just one possible path in monetary design).

Criticism and common misconceptions:

• "Halving is already priced in" — yes, the market knows the dates, but the psychological effect and the decrease in actual selling pressure (from miners) still change the supply/demand balance.

• "Without the subsidy, the network will die". The opponents’ argument: fees may turn out to be too low. The supporters' response: by that time, the user base and the cost of transferring value within the network will have increased enough that even small fees in BTC will ensure profitability.

• "Halving is not important; macro factors decide everything". Background factors are certainly critical (Fed rates, regulations, liquidity), but halving remains a unique programmed constant that any fundamental analysis of BTC must reckon with.

Regulatory context (2024-2025):

• USA. The simultaneous arrival of the bitcoin ETF (January 2024) and the fourth halving intensified institutional demand. SEC fees on the ETF created a new class of long-term holders.

• EU. The MiCA regulation has already been adopted; it emphasizes the ecological risks of Proof-of-Work, but does not yet impose a ban. The level of transparency in mining farms is increasing.

• China. Domestic mining has been banned since 2021, but Chinese manufacturers of ASICs hold leading market shares, exporting equipment to Kazakhstan, Russia, North America, and Latin America.

(This matters because regulations can temporarily reduce hashrate (for example, the migration of miners in 2021 caused block times to temporarily rise to 20 minutes), but in the long-term trend, halving still occurs on schedule).

Practical takeaways for investors and miners:

For investors:

• Plan for a minimum three to five-year horizon; impulses after halvings usually stretch out.

• Maintain a liquid "cushion" — the price can drop by 50-80% even in a bull cycle.

• Track not only S2F, but also metrics: Net Unrealized Profit/Loss (NUPL), number of active addresses, inflow of BTC to exchanges.

For miners:

• Incorporate subsidy decline into your business model: the payback period for ASICs ≥ 18 months becomes risky.

• Look for cheap electricity and thermal utilization (heating greenhouses, data centers): by-products increase margins.

• Keep an eye on the prices for new chip releases (for example, 5 nm or 3 nm) — efficiency growth in J/TH could make the difference between profit and loss right after the halving.

The future after the 33rd halving:

By 2140, the estimated subsidy will nearly disappear. Bitcoin will transition into a "mature stage", where network security is maintained by fees and valuable L2 transactions. By that time, Layer-2 (Lightning, Ark, Fedimint) and ZK sidechains may ensure scaling so that fees of several hundred satoshis become the norm, and block size becomes flexible (potential "adaptive block size").

While this is hypothesis, we can already observe:

• Growth of LN channels by tens of percent year-over-year.

• Innovations in ZKP protocols allowing thousands of transactions to be batched into one input in a block.

• The trend towards "masternodes" and federated vaults offloading the main layer.

Conclusion:

Halving is not just a date in the miners' calendar or a reason for media headlines. It is a foundational principle of Bitcoin's economic architecture, making issuance transparent and immutable. Each time the subsidy is halved, the network visibly reaffirms that rules are more important than anyone's preferences.

For BTC holders, this is a reminder:

• The price may fluctuate, but the number of new coins will decrease predictably.

• Scarcity, supported by demand, can create unique pricing trends, even if uneven.

For engineers and entrepreneurs, this is an incentive:

• To improve energy efficiency, develop Layer-2 solutions, and create new services based on the constantly shrinking subsidy.

And finally, for regulators, halving serves as a case study of how "monetary policy in code" is possible and works regardless of national borders. Bitcoin shows that predictable rules can compete with centralized solutions, and a reduction in issuance can become not a threat, but a value advantage.