Bitcoin approaches significant 'halving' event - A comprehensive explanation and its significance

Bitcoin has experienced an impressive surge in performance this year, witnessing a 40% increase in its price within a mere two months, reaching over $62,000. This places it close to its record high of approximately $69,000.

The upward trajectory in 2024 can be attributed, in part, to the approval of spot bitcoin ETFs by the U.S. Securities and Exchange Commission in January. These exchange-traded funds, linked to bitcoin's price, enable investors to participate in the bitcoin market without the direct purchase of the still debated cryptocurrency, minimizing associated risks.

Over $6 billion has flowed into the market since spot bitcoin ETFs commenced trading in the U.S. this year. The largest entity, Grayscale Bitcoin Trust, has seen a 48% increase since January.

Moreover, an impending technical occurrence termed "halving" is anticipated to drive further upward momentum for Bitcoin in the forthcoming months.

By April, the reward miners receive for generating new bitcoins will be reduced by half, decreasing from 6.25 bitcoin to 3.125. This event recurs every four years and will persist until the total supply of 21 million bitcoins is mined.

The concept of halving was incorporated into Bitcoin's code from its inception to establish scarcity and protect against inflation. Historical instances of halving events have consistently aligned with substantial price surges for Bitcoin.

Explore the comprehensive details regarding the imminent halving event.

What is bitcoin?

Let's begin with a basic understanding of Bitcoin. Introduced in 2009, Bitcoin is the pioneer cryptocurrency, characterized by its digital and decentralized nature, devoid of any affiliation with governmental or financial entities. Employing a technology known as blockchain, Bitcoin ensures security and guards against fraudulent activities by recording transactions.

The blockchain functions akin to a ledger, housing each bitcoin transaction within what is termed a block. The legitimacy of transactions in a block is confirmed through intricate mathematical problems that demand computational power for resolution. Once these problems are successfully solved, the block is appended to the end of the chain.

How are new bitcoins mined?

The introduction of new bitcoins into circulation occurs upon the addition of a block to the blockchain. Miners, who can be individuals or businesses, engage in competition to solve these mathematical problems. Presently, they receive a reward of 6.25 bitcoins, equivalent to approximately $388,000, for successfully completing these tasks.

What is halving?

Halving denotes a technical occurrence that happens approximately every four years. In adherence to Bitcoin's code, once every 210,000 blocks are appended to the blockchain, the mining reward undergoes a 50% reduction. This measure was implemented to decelerate the rate at which new bitcoins enter circulation.

The total quantity of bitcoins that can ever be generated is limited to 21 million, resembling the finite nature of resources like gold.

Anticipated in April, the upcoming halving event is slated to reduce the mining reward to 3.125 bitcoins.

How does halving impact bitcoin’s price?

Each of the three previous halving events has led to subsequent price hikes in the ensuing months. The most recent halving occurred in May 2020, with Bitcoin valued at approximately $8,750. Within six months of the halving, Bitcoin's price experienced a 79% increase, and one year later, it surged by an impressive 547%