- Purpose of Bitcoin Halving: The Bitcoin halving is a programmed event in the Bitcoin protocol. Approximately every four years, the reward for mining new Bitcoin blocks gets halved. This process aims to regulate the creation of new Bitcoins and maintain scarcity.
- Scarcity and Mining Difficulty: With each halving, the supply of new Bitcoins entering circulation reduces, promoting scarcity. Moreover, the mining difficulty adjusts dynamically, making it harder to mine new coins. As a result, the rate of new coin creation slows down, aligning with the principle of scarcity, similar to how precious metals like gold are finite.
- Impact on Supply and Demand: Bitcoin halving has a direct impact on the supply side of Bitcoin. As the creation of new coins decreases, this often leads to an increase in demand due to the perception of scarcity. Basic economic principles of supply and demand come into play, potentially driving up the value of Bitcoin.
- Long-Term Perspective: The regular halving events are designed to continue until the maximum supply of 21 million Bitcoins is reached, estimated around the year 2140. As the reward diminishes over time, it’s expected to make Bitcoin scarcer, potentially influencing its value positively.
- Market Sentiment vs. Fundamentals: While market sentiment and volatility can influence short-term price fluctuations, the halving’s impact focuses on the fundamental aspect of Bitcoin’s scarcity. This intrinsic scarcity, programmed into its protocol, aims to underpin its value in the long term, independent of short-term market swings.
The Bitcoin halving essentially balances the creation of new coins, maintaining scarcity, and, in principle, aims to support Bitcoin’s value proposition as a finite and decentralised digital asset.
The bottom line is. At each halving, each Bitcoin becomes twice as hard to create (Mine), which is designed to make it twice as valuable. If it didn’t, the miners wouldn’t be able to sell it and pay their bills.
By BTC Biker
