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What Is Bitcoin Halving? Does It Affect Bitcoin Price?

By Mina Krzisnik, fintech lawyer on ALTCOIN MAGAZINE

There is a total of 18,034,088 Bitcoins currently in circulation, out of 21,000,000 to ever be mined. There are 2,965,913 Bitcoins left to be mined. The Bitcoin inflation rate is 3,71 % per annum and after halving 1,80 % per annum.

There are a total of 602,727 blocks currently in the Bitcoin blockchain, 27,273 blocks are about to be created and 340,913 bitcoins are to be mined until the halving.

You are thinking we are talking language from a galaxy far far away. But it is actually not that hard to understand if you keep reading this post.

What Is Bitcoin Halving?

To gain a better and a basic understanding of Bitcoin halving, you’ll have to go back to Bitcoin mining. Whenever Bitcoin miners mine a Bitcoin block, they are rewarded with new Bitcoins.

If you do not know what mining is, let us quickly explain mining. Bitcoin is generated by a decentralized process (mining). Miners are basically computers, processing transaction and securing the network using special hardware and solving complicated algorithms. For that, they get transaction fees in Bitcoins. There is a fixed rate of “payment”.

The rules for the Bitcoin protocol set out by Satoshi Nakamoto featured two things. One of those was that the supply of Bitcoin was finite and restricted to 21 million. The second one was that the total number of Bitcoin generated per block, which means that the reward will decrease by 210,000 blocks by 50 percent as well.

Within an hour, an average of six blocks is founded, and the halving of Bitcoin occurs once every 210,000 blocks. This ultimately translates to the reduction in the reward for mining by 50 percent from what it previously used to be. For instance, if a Bitcoin miner usually gets 12.5 Bitcoins for solving a block, as soon as the next Bitcoin halving occurs, his/her reward will fall to 6.25 Bitcoins.

The purpose of the Bitcoin halving was to keep the inflation of Bitcoin under control. The halving of Bitcoin naturally cut the supply of new Bitcoin in half. Many people thus believe that this even will affect the price of Bitcoin drastically.

What Happens With The Bitcoin Price After The Halving?

Picture source: https://ihodl.com/infographics/2018-04-09/chart-day-bitcoin-reward-halving-and-price-history/

There have been two halvings since the development of Bitcoin in 2009. The first halving was 3 years after the first block of Bitcoin blockchain was created and happened in November 2012. Within a year the price of Bitcoin soared from 10 USD to a record high of 1,000 USD. The second halving happened in the mid of 2016 when the price of Bitcoin was around 800 UDS. The halving ushered in last year’s bull run, which climaxed in December of 2017. That year, the price of Bitcoin rose to a staggering 19,000 USD.

The price has since fallen back to 3.000 USD. The same was the case when Bitcoin was halved in 2012. In 2012, Bitcoin fell to as low as $200 per coin before it began to pick up before the Bitcoin halving in 2016.

It is not, however, definitive whether the price of Bitcoin is affected by Bitcoin halving. In 2016, nothing significant happened to the exchange rate of the Bitcoin to the US dollars after the Bitcoin halving. Bitcoin was trading at about $650 at that time. The rate rose to about $675 a week later.

When Is The Next Halving?

The next halving is scheduled to occur around the 20th of May, 2020. The only ground this will not occur is when there’s a wild swing in the hash rate.

Those who are directly affected by Bitcoin halving is the miners. This is because the new Bitcoin is being discovered at the expense of computer processing time, as well as electricity.

To Wrap It Up

Some individuals claimed that the Bitcoin halving would not cause a major change in the price of Bitcoin because the Bitcoin community is aware that the halving will occur. Other sections of people believe that the shortage in the Bitcoin supply and its rarity will lead to a rise in demand, which will also increase its price.

The fact is that the definite number of total Bitcoins ever to be made makes Bitcoin a rarity. As a store of value, it is safe to assume that the more rare Bitcoin gets the more valuable it will be getting by the time all Bitcoins are mined. Bitcoin also serves as a medium of and will be, due to its limited supply, exposed to less inflation than traditional fiat money, which can be printed at any time and devalue the already printed money.

If you need a crypto lawyer, we are here to help.

Originally published at https://www.iuricorn.com on November 7, 2019.

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