Bitcoin halving occurs every four years when the mining reward for miners is reduced by half, causing significant fluctuations in the price of the world’s largest cryptocurrency.
Attention turns to the halving event happening in April. Bitcoin halving is eagerly anticipated due to its direct impact on the entire industry, from miners and cryptocurrency investors to specialized mining equipment manufacturers and the energy sector.
Originally, the term “Bitcoin halving” mainly referred to miners - those who directly create Bitcoin by verifying transactions through solving complex puzzles to create new blocks. After each new block is created, miners receive a fixed amount of Bitcoin (BTC) as a reward.
To curb inflation when too many miners participate, Satoshi Nakamoto - the creator of Bitcoin - added a piece of code to halve the reward after every 210,000 mined blocks. This algorithm is known as Bitcoin halving.
Every four years, the halving event occurs, making Bitcoin mining increasingly challenging, thereby creating scarcity and eliminating inefficient miners from the network.
However, the greater risk lies in the issue of centralized mining across the entire network. With high levels of competition, small miners will be eliminated, and the majority of computing power will be concentrated in the hands of large-scale mining facilities. Data of Bitcoin from 2016 to 2021 shows that 30-40% of the network’s hash rate is consistently controlled by the two largest mining groups, Foundry USA and AntPoo. On February 28, these two groups controlled nearly 50% of Bitcoin’s hashing power, according to CoinDance. The hash rate represents the computational power for Bitcoin mining.
After halving, if miners no longer find it profitable and cease mining, transactions on the Bitcoin network will be congested, and malicious actors may dominate network operations. Additionally, when mining becomes less decentralized and is controlled by a few entities, they may control transaction validation by choosing not to confirm them. This goes against Satoshi’s original ideals of decentralization and censorship resistance in Bitcoin. However, the positive aspect is that miners have never collectively left the network after halving events. Bitcoin miners will strive to balance and overcome the challenges of halving to sustain this industry.
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