In May 2020, Bitcoin will go through the process called “halving”. This will be the third halving since Bitcoin was created in 2009. Satoshi Nakamoto integrated this mechanism into the protocol. Halving means that the miners receive 50% less BTC reward for every block they mine. In order to extend the life of Bitcoin and ensure that it remains a deflationary asset, Bitcoin halvings are scheduled to occur once every 210,000blocks, which happens roughly every four years and until the maximum supply of 21 million Bitcoins has been generated by the network. In this third halving, the reward for every block mined will be halved from 12,5 BTC to 6,25 BTC. This happens because Bitcoin operates on a model of deflation, fewer Bitcoins will be made over time and the supply will eventually stop, when the last Bitcoin is mined, the estimated time for that event is the year 2140, there will be no more new ones. FIAT currencies, for example, use an inflationary model, the banks can print extra amounts of currency at will. As only a limited number of Bitcoins exist, they can only be “mined” and not created. After all the coins have been mined, the miners will rely entirely on transaction fees as means of revenue.

Bitcoins are generated whenever a block of transactions are solved by the miners and added to the Bitcoin blockchain. This is a very expensive process, that requires special hardware and huge amounts of electricity. For solving the blocks, miners are rewarded with new Bitcoins. The process of solving blocks occurs every 10 minutes, so every 10 minutes new blocks are made. The first miner, that solves a block, receives this block reward in the form of Bitcoins. In the early days of Bitcoin, the block reward was 50 BTC and back then, everybody with a computer could mine it. Today, however, it is much harder to solve the blocks and generate bitcoins. Mining difficulty is increasing due to more and more miners joining the network and that means, that miners need more powerful hardware to solve these cryptographic algorithms. This has led to many miners using the so-called “mining pools”, which is a network of miners who share their processing power and split the block reward.

The first halving happened on 28 of November 2012. The block reward went from 50 BTC to 25 BTC. The second one happened on 9 of July 2016, the block height of Bitcoin blockchain reached 420,000 blocks and the block reward was reduced from 25 BTC to 12,5 BTC. When the block height reaches 630,000, the third halving will occur, decreasing the block reward from 12,5 BTC to 6,25 BTC.