Bitcoin Block Reward Halving

Bitcoin Block Reward Halving

The Bitcoin (“BTC”) block reward halving (“Bitcoin Halving”) occurs every 210,000 blocks which takes about four years based on the 10-minute average block time. The Bitcoin Halving event is a pre-programmed event that is scheduled to reduce mining rewards earned by the Bitcoin miners for validating and adding new block of verified transactions on the blockchain.

As an integral part of Bitcoin’s issuance, the total number of Bitcoins that can ever exist is limited to 21 million. Bitcoins are distributed through a validation process for transactions initiated on the blockchain known as mining at a reward (in the form of new Bitcoins) to the miners (validators).

The Bitcoin block reward halving mechanism was introduced into the operational code of Bitcoin by its developers to ensure scarcity by controlling the number of Bitcoins introduced to the blockchain by slashing block rewards earned by miners into halves.

The Halving event is essential in ensuring that the supply of Bitcoin is kept in check to prevent inflation. It is anticipated to happen every 210,000 blocks or roughly every four years, with the most recent halving in May 2020, reducing the reward from 12.5 to 6.25 BTC per block. The Bitcoin Halving plays a crucial role in regulating the inflation of Bitcoin and preserving its worth.

Although the halving event is scheduled to take place when the block height reaches 840,000 blocks, which is estimated to be 20^th of April 2024, the actual date and time may vary due to processing times of the blockchain.

Historical Halving events 

Bitcoin Block Reward Halving Countdown

Evaluation Process   

MidChains has :  

• Evaluated what is changing? 

• Analyzed the impact of the changes. 

What is Changing? 

• Block Rewards: As with previous halving events, the 2024 halving will reduce the block rewards from 6.25 Bitcoins per block to 3.125 Bitcoins per block. Thus reducing the rate at which Bitcoins are created.

• Reduced Mining Incentives: The halving event reduces miners’ incentives by half, which may result in a concentration of mining power since smaller miners may be compelled to exit the market owing to lower profitability.

• Scarcity and Inflation Control: The halving event implements scarcity feature into Bitcoin's issuance, aimed to control Bitcoin inflation and enhance its scarcity. With fewer new Bitcoins entering circulation, the existing supply becomes scarcer. This scarcity plays a significant role with Bitcoin’s value over time.

Impact Analysis 

1. Impact on Client Funds: No Impact on client funds as it is a programmed event. MidChains’ clients do not encounter direct changes on the platform due to the halving and all transactions are expected to be processed without disruptions. 

2. Price: Historically, the price of Bitcoin has increased post-Bitcoin halving. However, other factors could negatively impact the price of the Bitcoin, for example, there may be increased wait time for transaction validation on the blockchain because of the reduction to miners’ incentives. Though it is not yet clear how the upcoming halving will impact bitcoin’s price, looking at past halving events, Bitcoin has experienced significant price movements both before and after the halving. While there is no guarantee that the history will repeat itself, it is speculated that the price may follow a similar pattern to the previous three halving events, and the price will rise after the event. 

3. Regulatory Implications: No Impact expected.

4. Maturity: Re-affirmation of BTC’s established monetary policy that could impact BTC’s Market Capitalization with dependency on demand. 

5. Security Halving the mining rewards inevitably impacts motivation to miners as computational power required for mining is higher. Hence in the event that miners pull out due to unsustainable operational costs, this could adversely impact the network security of Bitcoin. The reduced number of miners could potentially pose a security threat to the Bitcoin network, as fewer miners make the blockchain network more susceptible to a 51% attack. However, Bitcoin's network has proven resilient in previous Halving events, and it is expected to remain secure in the long run. 

6. Traceability / Monitoring: No impact expected. 

7. Exchange Connectivity: Potential increase in market participants due to anticipated market volatility. Demand for Bitcoin has historically continued to increase, driven by factors such as adoption by institutions, retail investors and growing interest in the asset. 

8. Type of Distributed Ledger Technology (DLT): No Impact expected, as there is no change to the underlying technology. 

9. Innovation and Efficiency: The halving event is an innovative way to manage Bitcoin's issuance and to create a deflationary asset. It seeks to promote the efficient use of resources and aligns with the broader narrative of digital scarcity. 

All potential material, operational, and market risks associated with the Bitcoin Halving event have been duly assessed. Furthermore, MidChains remains committed in maintaining transaction traceability and monitoring of transactions initiated on the blockchain.

Upgrade Preparation

MidChains' custody infrastructure is configured to manage the Bitcoin Halving event seamlessly. Clients holding BTC, node operators, users, or validators need not take any action. There is no anticipated downtime during the Halving period, ensuring uninterrupted deposit, withdrawal, and trading for BTC and BTCUSD.