74. The Bitcoin Halving, Why it’s Important And How To Prepare Now.

So before there was a halving every 10 minutes, 50 bitcoin would be mined. And that will go to whoever mined it. In November 2012 it went down to 25 Bitcoin. July 2016 it went to 12 and a half Bitcoin. May 2026.25 Bitcoin. And around April 2024 it'll be 3.125 Bitcoin. This continues forever. So the halving tends to spur on a bull run. Six months either side. Which is why we're excited at this point in crypto, because it's an opportunity to actually accumulate.

Welcome back to another episode of the Ben and Bergs Podcast with your favorite MBA and high school dropout talking everything business, crypto and personal growth. And today we are both wearing orange. I'm wearing the orange beanie. Burgess has come in with the orange hoodie. Now this is pretty special burges because this is actual utility from nft. This is. I own the nft. Well Collective Shift owns the Adidas NFT and I get shipped this custom merch all the time, Lim edition. But it is so ridiculous. I've never worn any of it apart from this beanie because it's like fluoro yellow and like just all these like insane clothing that I could not pull off as a nerdy white boy that I am so to be able to, to wear the merch, mate, I'm pretty, pretty stoked.

Did you have to pay for it or they shipped it and everything for.

Free Just all comes every like couple of months. Get pretty close.

Yeah, that's pretty good. That's good.

It's pretty good utility and you're in the orange. Mate, I haven't seen this hoodie. Is this a new hoodie?

Mate, I bought a bunch of hoodies. We're in the orange where we didn't coordinate this. Dear viewer, we just rocked up both in orange. We had a emergency pod before with all the binance news and look, we're just coordinated and mate, today one of my mates jb shout out to jb pulled us up. He was saying, you guys always talk about the bitcoin halving and how important it is, but you've never told us what it is and how it works. And we're like shit, we've done a bad job there. So this episode today, Ben is going to be all about the bitcoin halving.

Amazing. So I'm going to upframe it just to give you a bit of context, but a macro. What, what goes on and then Berg's going to Go a little bit deeper and talk about, you know, sort of more of the micro detail. So the halving is basically, if we take a right step back, you know, bitcoin is built on a blockchain. Blockchain is just software. It's code. It's written in a automated way. So whatever you. Sorry. How bitcoin was built will be the same forever. It's programmatic. And what's programmed into the bitcoin blockchain is the amount of bitcoin that will ever be created. The amount that ever be created is 21 million Bitcoin. Right now, there's somewhere between 19 and 20 million Bitcoin in circulation. Now, as an analogy, the way that bitcoin is mined is just like gold and how gold is mined, where people go to, you know, mine gold out of the ground with their pickaxes or their drills and they go and, you know, have to put in humans energy to get gold out of the ground. And there is somewhat of a limited supply and gold, but we don't really know how much it is. We just know it's limited supply asset. With bitcoin, it's programmed into the code. Now, the way that we create bitcoin is through miners. Miners are basically just computer algorithms that solve a mathematical equation. And if they do solve that mathematical equation, it basically secures the blockchain. It just allows those transactions to happen, and they get rewarded through new bitcoin. And each day, the amount of bitcoin that comes into circulation, the amount that is created by these miners is the same, but it changes every four years. And that is called the halving. So what, what happens is the supply, the amount of bitcoin that miners produce each year halves every four years. So what happens is you get a shortening supply of bitcoin. So if you think about right now, let's say there's 19.5 million Bitcoin out there. There's only 1.5 million Bitcoin to be mined, to go. Each day There's a book, 6.65, 6.25 Bitcoin created each day.

Per block.

Per block. Yeah, sorry, per block. 6.25 per block. And you can imagine when that halves every four years, the amount that comes into circulation slows down. Now, if you halve something every four years, it goes from 6.25 to 3.125 to 1.25.

It gets less and less every four years. So what you get is a flattening supply curve. So you go back a few years, the Bitcoin blocks are really pushing out a lot of bitcoin. And then as time goes on, it slows right down to the point where there's so little bitcoin being created, it's basically no more being created. So it'll take, I think, 100 and something years to get to 21 million. Bitcoin, technically speaking, it'll never get there, I don't think mathematically anyway, that doesn't matter. We'll get back. The point being is that the supply is deflationary, which is the opposite of fiat currency when there's more being created into the supply. And it's why the purchasing power of cash decreases, because there's an endless supply that is the opposite of bitcoin. And it's one of the fundamental reasons why bitcoin is so valuable. Now, the reason we're talking about the halving is because it's coming up in April next year. And historically, every time the halving occurs, we get a bull market either side of that halving because people start to remember it, the mainstream media start talking about it. Miners are starting to get ready to get less rewards. The supply decreases. There's a lot of things that sort of coincide. So that, at a macro level is the harving. I'm going to hand over to Burke to talk a little bit more like, you know, how, you know, how this actually happens on the blockchain and then why it's important for us to know.

Awesome. So let's. That was such a good summary, mate. And let's just now add a bit of color to it and we'll go a little bit deeper. And I want to talk about miners, first of all. So these are people, they secure the network and they do a thing called proof of work through a thing called hash power. What does that mean? It means you run a computer, your computer smashes this algorithm, lends this hash power and eventually you get a result. Okay, but what does that really mean? Well, you got a. Let's say I've got my laptop, I'm using that, I'm lending the compute power from that to solve a hashing problem. And what that means is this is how technical Bitcoin is, right? I'm just doing brute force attacks. So I keep trying a number, another number, another number, another number. I run it through that as an input, I run it through an algorithm and I get an output and I'm trying to get a specific output. All these people in the world are competing to do that, and only one person or group gets it every 10 minutes they solve a block. They then transmit that to the network. The network can then immediately verify it and say, this is, this is true, this is what's happened. We agree with you. Now the whole thing about this and the encryption in the algorithm is that it's called a one way checksum. So you have to keep trying and trying and trying to go through that algorithm and get a result. You can't have the result and go backwards. That's why it's proof of work. That's why it's expensive. Now let's use Ben's analogy. If I'm out there with my little laptop, imagine that's just a picture, a pickaxe and a shovel. I'm in the middle of the desert. I've got Buckley's chance of finding any gold. Now let's imagine I've got a full mining operation. I got trucks, I've got bloody conveyor belts, I've got 10,000 people. I'm probably going to find something. And this is the way it works as well to get a bitcoin reward. If I'm just on my laptop, I've got zero chance of getting anything. But I can join a thing called a mining pool. So we can all put our hashing power together. We've got more chance of solving that block in that 10 minutes. And if we solve that, we then get the bitcoin reward, which will be distributed among the mining pool and, and I get my percentage of that. Now why does this matter? Well, it matters because these are the guys that keep bitcoin running and it needs to be profitable for them. So the majority of miners have gone out, they've bought the trucks, they've got a full mining operation. And in bitcoin language, they're called ASICs, which are application specific integrated circuits. They are specific little machines that are made to mine the bitcoin algorithm to throw that proof of work and that brute force against it. And they need a return on investment. So think about it. Six and a half, 6.25 Bitcoin are getting produced every 10 minutes. Those guys either try to keep that for the capital growth or they need to sell it to recoup their costs, which is what really drives bitcoin price as well. So that's a little bit about the mining side for you. And just to touch on the halving. So before there was a halving every 10 minutes, 50 bitcoin would be mined and that will go to whoever mined it. In November 2012, it went down to 25 Bitcoin, July 2016 it went to 12 and a half Bitcoin, May 2026.25 Bitcoin. And around April 2024 it'll be 3.125 Bitcoin. This continues forever and it's asymptotic, so it keeps halving and halving and halving and it never touches the bottom. And bitcoin in terms of its monetary policy is what we call disinflationary. So it's increasing at a decreasing rate until the point it actually becomes deflationary because you've mined the majority of the bitcoin and people lose it or, you know, they send it to another address that can't be rescued. So that gives you an idea of the halving, of what really spursing is on. Now I'd like to talk about market cycles and then I'll talk about why bitcoin is important. So the halving tends to spur on a bull run six months either side, which is why we're excited at this point in crypto, because it's an opportunity to actually accumulate during this period of time. And if you think about it, if you look at the charts around the halving, this is when people would you generally see a bull market spur on. But we also have innovation cycles as well. And I'll specifically talk about the one in July 2016. So from July 2016, the six months leading up into 2017, that really sparked the ICO boom. So there was innovation happening around that bitcoin cycle. And then if we look at May 2020, we also had NFTs and layer twos. So although this, this isn't a, it's a causation or causality thing where the bitcoin halving itself may not spur on that growth, but the innovation and the cycles around it certainly will. And it's all of that happening together in a four year cycle that really leads us to those bull markets.

And now probably talk about bitcoin and why it's important just to round this whole thing out. So really we've got six criteria of open blockchains. And this is from Andreas Antonopoulos. And these criteria is like, I have to revisit it every week and it just makes me so happy. So the first one is open blockchains are open and permissionless. You don't even need to be a human to use bitcoin. Anyone can use it, they're borderless. You can use it anywhere. It doesn't matter where you live or travel. Bitcoin doesn't care they're neutral. Bitcoin doesn't care. It only cares if you obey the consensus rules. The transaction goes through. Doesn't care what it is. Do you obey the protocol and the rules? Yes. Great. You're on the blockchain. It's censorship resistant. No one can stop you doing something. If it obeys the consensus rules and it's public, it's openly verifiable. I could run my own node. I can verify the transactions. I don't have to trust people. I can verify it. And it's immutable as well. So every block that has been added since the beginning of time, we add another block. We add another block and we don't modify the blocks that have come previously. And that solves the double spam problem.

Thank you, Bergs. Amazing explanation. I think that's really giving listeners a great explanation as to why we love the blockchain, why we don't need to trust people when we can trust code, and how the halving comes into that supply and demand, you know, numbers game where we can really start to get a get a foresight on when the market might, you know, return. And April next year is an exciting time. We're on the downward slope, man. So thank you so much.

Thanks so much, champions.

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Thanks. Championship.