It’s no accident that the third Bitcoin price halving occurred at the same time as the popular digital asset’s most recent ascent to new highs.This was a significant event for the world’s most popular cryptocurrency, which is why it’s sometimes referred to as “the halvening.”
As of May 11, 2020, Bitcoin will be halved. Here’s what that means and how investors should approach the situation.
- What is Bitcoin halving?
- What’s the point?
- The U.S. dollar and Bitcoin are two examples of cryptocurrencies.
- When is the next halving scheduled to take place?
Table of Contents
What is Bitcoin Halving?
One MB’s worth of Bitcoin transaction records are stored in one “block” on the blockchain.
“Miners” compete to solve a difficult mathematical problem with a random 64-character output called a “hash,” completing the task and locking the block so that it cannot be changed. They use specialised hardware to add the next block. Completing blocks is how miners get paid in bitcoin.
Miners used to get paid 50 bitcoins (BTC) for each block when the cryptocurrency first launched. Decentralized financial protocol Sovryn co-founder Edan Yago says that early adopters will be incentivized to mine the network even if it’s not a success.
Once every 210,000 blocks are mined, or roughly every four years, the rate of new BTC creation is cut in half. This process will continue until all 21 million bitcoins have been mined.
The reward for mining a block was reduced in half, from 50 BTC to 25 BTC, in the first Bitcoin halving in 2012. As of May 11, 2020, only 6.25 new Bitcoins are created with each new block mined due to the reward halving event, which was implemented in 2016.
Caleb Chen, digital currency and privacy advocate at Private Internet Access, says miners must “plan for the Bitcoin halving because it represents a near instantaneous drop in revenue.” A fundamental part of the Bitcoin system, it affects every facet of the cryptocurrency in profound ways.
What’s the Point?
A halving is often accompanied by a lot of turbulence for bitcoin, so buyers should be aware of this systemic feature.
A month before and after each halving, according to Listing.founder Help’s and CEO, “Coindesk analysts pointed to an increase in Bitcoin trading volumes.”
It’s easy to see why – as the supply of Bitcoins available is halved, the value of the Bitcoins that are yet to be mined increases. These changes in the market also bring with them the potential for profit.
Take a look at Bitcoin’s past for some context. On November 28, 2012, when the price of a Bitcoin was only $12, the first halving took place. A year later, the price of Bitcoin had risen to around $1,000. The second Bitcoin halving took place on July 9, 2016, when the price had dropped to $670 per coin, but it had risen to $2,550 by July 2017. That year, Bitcoin reached an all-time high of approximately $19,700 in December.
When Bitcoin’s price was halved last, it was at $8,787 in May of last year. Since then, its value has risen dramatically. Cryptocurrency prices have risen sharply in recent weeks, and are now hovering around $48,000. On the 21st of February, it surpassed the $58,000 mark to set a new record high.
Many other factors came into play after the halving, such as increased media coverage of digital currencies and Bitcoin in particular, a fascination with the digital asset’s anonymity, and an ever-expanding list of real-world applications for the currency. But history shows that previous Bitcoin price halvings were positive catalysts for the cryptocurrency’s long-term growth.
However, the third Bitcoin price halving in the short history of the cryptocurrency is almost certain to have other effects on the ecosystem. Bitcoin miners’ numbers are likely to fall as the economic incentive to mine becomes less compelling and unprofitable for those with lower efficiency.
The U.S. dollar and Bitcoin are two examples of Cryptocurrencies
How can we justify paying miners half as much as they used to?
It may appear that miners have less motivation to work on the remaining blocks, but this is a design choice.
As the network’s transaction fees grew, Satoshi Nakamoto (the pseudonymous Bitcoin creator) saw less of a need for miner subsidies, so he set the predetermined, diminishing rate of newly minted BTC accordingly, according to Yago.
Khitrov concurs, pointing out that halving is a key feature of cryptography. In addition to controlling cryptocurrency emission, he claims that halving will also help to reduce cryptocurrency inflation. When a new cryptocurrency is released, the Bitcoin code automatically adjusts the release amount to push back the expiration date.
It’s coincidental that Bitcoin’s first post-mainstream halving occurs in 2020, the same year the United States unexpectedly and unprecedentedly increased its money supply by printing trillions of dollars to stave off an impending economic collapse. Inflation and Treasury yields are rising, and investors are beginning to see the effects of this unprecedented monetary policy, which has halted the most recent market rally.
When compared to fiat currencies, Bitcoin’s deflationary nature can be seen in the currency’s halving every year or so, according to Chen. From the outset, the bull thesis for Bitcoin was that it couldn’t be printed into obscurity by governments or central banks, and that the total supply was known. That thesis has held true.
So When Is The Next Halving?
The era of unrestricted Bitcoin circulation is over.
More than 18.5 million Bitcoins, or nearly 89%, have already been mined and are in circulation of the 21 BTC Bitcoins that will ever exist. An average day generates approximately 900 brand-new Bitcoins, but as computing power increases and the hash rate decreases, it is possible that the daily total will be higher.
As Bitcoin supply is halved on a regular basis, the rate of growth will slow until all 21 million BTC have been mined. According to current estimates, the last fractions of Bitcoin will be mined in the year 2140.
The reward for mining a block will be halved at some point in the future, but no specific date has been set. When the 210,000th block has been mined since the previous halving determines how much money you’ll get.
Since a new Bitcoin is mined roughly every ten minutes, the next halving is expected in early 2024, at which point the reward for a miner will be halved to 3.125 Bitcoin. The time to start preparing is now for both bitcoin miners and investors.