For the first time in nearly four years, and for only the third time in its 11-year history, bitcoin is about to undergo a seismic shift to its technological foundations. The halving event will not only affect how bitcoin is created, it will likely also have a significant impact on the entire cryptocurrency market.

Scheduled to take place next month, the event all stems from bitcoin's unique digital design. Unlike traditional currencies, the number of bitcoins that will ever exist is fixed. The mathematical code underpinning the cryptocurrency means that only 21 million bitcoins can ever be produced and no amount of quantitative easing can artificially inflate this.

More than 18 million bitcoins have already been produced through a process called mining, whereby new units of the cryptocurrency are generated by networks of computers programmed to solve complex mathematical puzzles.

The imminent halving of bitcoin, however, is about to make this process considerably more difficult.

What is halving and why is it necessary?

The halving event, sometimes referred to as “the halvening”, is essentially the opposite of quantitative easing – so much so that some crypto enthusiasts refer to it as quantitative hardening.

As the name indicates, the halving cuts the production of bitcoin in half in such a way that mining the cryptocurrency only generates 50 per cent of the yield it used to.

It takes place roughly once every four years whenever 210,000 blocks have been mined, and is predicted to take place on 12 May. This halving will see mining rewards fall from 12.5 bitcoins per block, to 6.25 bitcoins.

Bitcoin's volatile history in pictures Show all 8 1 /8 Bitcoin's volatile history in pictures Bitcoin's volatile history in pictures Satoshi Nakamoto creates the first bitcoin block in 2009 On 3 January, 2009, the genesis block of bitcoin appeared. It came less than a year after the pseudonymous creator Satoshi Nakamoto detailed the cryptocurrency in a paper titled 'Bitcoin: A peer-to-Peer Electronic Cash System' Reuters Bitcoin's volatile history in pictures Bitcoin is used as a currency for the first time On 22 May, 2010, the first ever real-world bitcoin transaction took place. Lazlo Hanyecz bought two pizzas for 10,000 bitcoins – the equivalent of $90 million at today's prices Lazlo Hanyecz Bitcoin's volatile history in pictures Silk Road opens for business Bitcoin soon gained notoriety for its use on the dark web. The Silk Road marketplace, established in 2011, was the first of hundreds of sites to offer illegal drugs and services in exchange for bitcoin Bitcoin's volatile history in pictures The first bitcoin ATM appears On 29 October, 2013, the first ever bitcoin ATM was installed in a coffee shop in Vancouver, Canada. The machine allowed people to exchange bitcoins for cash REUTERS/Dimitris Michalakis Bitcoin's volatile history in pictures The fall of MtGox The world's biggest bitcoin exchange, MtGox, filed for bankruptcy in February 2014 after losing almost 750,000 of its customers bitcoins. At the time, this was around 7 per cent of all bitcoins and the market inevitably crashed Getty Images Bitcoin's volatile history in pictures Would the real Satoshi Nakamoto please stand up In 2015, Australian police raided the home of Craig Wright after the entrepreneur claimed he was Satoshi Nakamoto. He later rescinded the claim Getty Images Bitcoin's volatile history in pictures Bitcoin's big split On 1 August, 2017, an unresolvable dispute within the bitcoin community saw the network split. The fork of bitcoin's underlying blockchain technology spawned a new cryptocurrency: Bitcoin cash REUTERS Bitcoin's volatile history in pictures Bitcoin's price sky rockets Towards the end of 2017, the price of bitcoin surged to almost $20,000. This represented a 1,300 per cent increase from its price at the start of the year Reuters

The event is not determined or governed by a centralised body. Instead, it is hard-coded into bitcoin’s underlying blockchain that was created in 2008 by its pseudonymous creator Satoshi Nakamoto.

Bitcoin was developed as an antidote to the perceived flaws in the established financial system, which had contributed to the global crisis of 2007-2008. By cutting the supply, the halving event is designed to ensure the scarcity of bitcoin while preventing extreme price inflation.

Will it affect the price of bitcoin?

Previous halvings have resulted in sharp price increases and severe market volatility for bitcoin and other cryptocurrencies, as traders and miners adjust to the new production limitations of the world’s most valuable virtual currency.

The halving in 2012 saw bitcoin’s value shoot up by 80 times, while the 2016 halving preceded a 300 per cent rise in bitcoin’s value. The simplest explanation for these price increases is the basic economic principle of supply and demand: if the supply suddenly drops but demand stays the same, the price will inevitably rise. But the decentralised and semi-anonymous nature of bitcoin means it is difficult to attribute specific gains or losses to a specific event.

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May’s bitcoin halving comes in the middle of a global economic meltdown, though it is not yet clear whether collapsing markets is driving money away from traditional assets into cryptocurrency. Some analysts claim that bitcoin is becoming a safe-haven asset similar to gold, and early evidence suggests that investors may already be looking towards it as an alternative store-of-value.

The CEO of one of the world’s largest cryptocurrency exchanges recently revealed data showing a spike in deposits of $1,200 – the exact same size as the US government’s stimulus cheque. ​

Bitcoin is yet to be tested by global economic disruption on this scale, and it may well go the same way as stocks or other assets as investors rush to liquidate holdings into cash. Some analysts are hopeful, however, that the halving event combined with traditional market chaos could see the cryptocurrency reach above the record highs of $20,000 that it saw in 2017.

"Many eyes have been on bitcoin since the bull run of 2017, with people eagerly awaiting its next big moment. We believe that moment is coming and we can expect to see an explosive year for bitcoin," Danny Scott, CEO of British-based cryptocurrency exchange CoinCorner, told The Independent.