Educational

2024 Bitcoin Halving:
Top 5 FAQs

Answering Common Bitcoin Halving Questions

by Fidelity Digital Assets

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In the latest installment of our 2024 Value Exchange series, Chris Kuiper (Director of Research at Fidelity Digital Assets℠) and special guest Fred Thiel (Chairman and CEO of Marathon) explored the wider implications of the 2024 Bitcoin halving and discussed its potential impact on market participants. Now, we are unpacking five of the most common questions attendees had when it came to the basics behind the halving. 

Why Does Bitcoin Need a Halving?

One helpful way to frame bitcoin issuance is as a digital operation similar to gold mining—however the halving creates a more predictable issuance schedule. As more gold is mined around the world, the harder it becomes to source. This provides the asset (gold) with its scarcity attribute. Investors can apply the same basic concept to bitcoin and the halving. 

When Bitcoin’s pseudonymous creator (“Satoshi Nakamoto”) first launched the network and its original reference implementation, the halvings were included in the code. The halvings function as a built-in mechanism  that limits the total number of bitcoin in circulation while also ensuring the asset’s scarcity by capping its maximum supply over time. The number of new coins created is reduced by 50% following a halving, slowing the growth of Bitcoin’s circulating supply even if demand rises. Bitcoin’s resilience and growth has continued to demonstrate its value as a unique asset class since its inception—all of which is in part due to the scarcity ensured by the routine halving cycle.

How Are the Bitcoin Limit and Halving Enforced?

Bitcoin is not controlled or owned by a single person or organization, meaning there is no one person or organization who needs to “enforce” the limit. Instead, the halving is automatically triggered by the protocol. The final halving date is already estimated to occur sometime in 2140, marking the asset’s theoretical maximum supply.

Although past Bitcoin halving events have occurred roughly every four years, the exact time between them varies due to the protocol's self-adjusting mechanism. This is because each halving is triggered to occur after 210,000 new blocks are mined, capping off at a total of 21 million BTC as determined by the network. 

Can Anyone Mine Bitcoin?

Mining Bitcoin is like playing the lottery with the support of a powerful computer. Miners compete in a race with other participants to guess a correct combination to a lock. Once this answer is found, a new block of transactions is added to the Bitcoin blockchain—and the winner is rewarded with newly minted bitcoin.

Although any individual could mine in theory, the process does require a substantial amount of computational power and electricity to effectively outcompete other participants. 

How Will Miners Be Impacted Following the Halving?

Miners experience a 50% reduction in block subsidy after every halving event, with the 2024 halving reducing the mining reward to 3.125 BTC. For many miners, this means adjusting their strategies to maintain profitability, such as upgrading equipment or joining a bitcoin mining pool.

For a more complex look into how the most recent halving will impact miners, be sure to read our recent article exploring the economics of the event from their unique perspective.

Will AI Make Mining Bitcoin Too “Easy” in the Future?

Artificial intelligence (AI) could theoretically be leveraged to optimize several aspects of mining operations with possibilities ranging from overall improvements in energy efficiency to enhanced equipment maintenance and resource allocation. However, AI will not inherently make it “easier” to mine.

Like the pre-programmed halving events, Bitcoin is built to automatically increase or decrease the difficulty of mining blocks based on the total computational power of the network. As more miners participate, blocks automatically become harder to find. This adjustment mechanism helps keep the network secure and stable. Returning to the idea that mining is similar to a lottery, consider this: AI could not help you scratch off tickets more accurately. 

Dive Deeper into the Halving

Remember: Each Bitcoin halving is a historic event, marking a significant shift in the digital assets industry. So, although the next halving will not be seen until 2028, it will be essential to monitor changes in sentiment, adoption, and the wider market following the most recent reduction in block rewards.

Now that you have the basics covered, watch Chris and Fred’s full conversation for a more in-depth look into the 2024 Bitcoin halving and its impact on market participants.


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