Bitcoin Halving Explained In Plain English
The pioneering and widely embraced cryptocurrency is on the verge of a significant event: its creation rate is set to halve in a few hours, marking a substantial decrease in its supply.
Welcome to this week’s episode of “Web 3 by Night”. Today, we’ll be talking about Bitcoin’s halving. Together, we’ll discuss Bitcoin’s history, its consensus mechanism, reward system, the upcoming halving, and what it means for crypto hodlers and adopters.
Fifteen years ago, in 2009 precisely, a huge disruption was created within the financial system. This disruption established the creation of cryptocurrencies with the aid of blockchain technology with bitcoin being the first of all cryptocurrencies.
This revolution brought about the decentralization of the financial market. A form of peer-to-peer (P2P) electronic cash system that eliminates the need for third parties — centralized bodies, and parastatals.
Bitcoin halving is imminent and it’s simply the reduction in the supply of bitcoin. A bisect in the amount of block reward given to its miners. The halving policy was written into Bitcoin’s mining algorithm to counteract inflation by maintaining scarcity. Occurring every four years, the halving has occurred three times with the next halving scheduled for the 20th of April, 2024.
To better understand the concept of halving, a brief run down to Bitcoin’s creation would help.
When Satoshi Nakamoto created Bitcoin, he created an incentive system that rewards its miners with Bitcoin after they have solved a group of complex mathematical problems. This reward system translates into a new block mined and created into circulation every time a puzzle is solved.
According to its algorithm, it will take approximately ten minutes for each block to be mined. However, to reduce the effect of over-circulation, the reward process halves every four years (every time 210,000th formulas/blocks get solved) giving it the scarcity and value it was created for. This reduction slows down the distribution of bitcoin thereby keeping inflation in check — an imbalanced market where supply outruns the demand for goods and services.
Bitcoin’s Reward System
These incentives as of 2009 stood at 50 BTC per block mined. However, the second and third halving also took place on the 9th of July, 2016, and the 11th of May, 2020 resulting in the slashing of its reward to 12.5 BTC and 6.25 BTC respectively.
You might want to know if additional miners would reduce the mining time from ten minutes
Well, the answer is “No”. Bitcoin’s algorithm was fashioned in a way that mining occurs every ten minutes no matter the number of miners available. To put it in another way, the mining difficulty is adjusted depending on the number of miners readily available with its difficulty increasing when there are more people mining and reducing when fewer people are mining.
Will the halving spark a rally in Bitcoin?
Previous halving events have seen Bitcoin rally to an all-time high (ATH). However, bitcoin recently reached an All-Time High due to certain factors such as the launch of the Bitcoin Spot-ETF in the United States.
Why should these miners continue mining after their reward has been halved?”
The good thing about these halving events is that with the halving comes an increase in the price of bitcoin. More or less like trading the mining reward for the increase in its price.
Over the years, research has shown historical activity around Bitcoin and other altcoins after Bitcoin’s halving. It has shown that after this event, Bitcoin experiences a bull run. Because the majority of other cryptocurrencies follow Bitcoin’s trend, the market follows suit.
After the first halving in 2012, the price of bitcoin rose from $12 to a whopping $1213. The second halving event which took place in 2016, saw the price of bitcoin climb to $19,800 from $647. During its third halving in 2020, bitcoin’s price surged to a whopping $68,000 from $8,787.
In conclusion, the upcoming Bitcoin halving stands as a pivotal moment in the cryptocurrency world, with the potential to significantly impact supply dynamics and price movements. Stay informed to make wise trading and investment choices, shaping the future of Bitcoin together.
PS: This content is exclusively for educational purposes. Solely to help you demystify the jargon of the Web 3 world. Please contact your financial advisor if you wish to invest in cryptocurrencies.
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Thanks for reading.
