Why is bitcoin halving such a big deal?
Bitcoin is the name of the best-known cryptocurrency, the one that pioneered the blockchain technology. A cryptocurrency, like the US dollar, is a medium of exchange but is digital and uses encryption techniques to monitor the production of monetary units and to verify the transfer of funds. It uses cryptography to secure and verify transactions, and to control the creation of new cryptocurrency units. Cryptocurrencies are merely small entries in a database that nobody can alter unless specific criteria are met.
The supply of bitcoin is finite, and the network will stop generating once 21 million coins are produced. That’s one of the critical reasons Bitcoin is also referred to as “digital gold “, there’s just a small amount of it in the world, and it’s all going to be mined sometime.
What is Bitcoin halving?
Bitcoin goes through a cycle called “halving,” after every 210,000 blocks. Satoshi Nakamoto himself implemented this method into the protocol from the very beginning. It becomes complicated to produce new coins after every 210000 blocks, so the protocol cuts the incentive for the block reward in half. Block reward is the amount of cryptocurrency that miners receive when they successfully validate a new block by solving a complicated puzzle. Therefore, every time a Bitcoin halving happens, miners start collecting 50 per cent fewer BTCs for transaction verification.
The history of bitcoin halving
Miners were getting 50 BTC per block when Bitcoin was introduced in 2009. So a total of 10,500,000 BTC was produced before the next halving in November 2012, when miners began receiving 25 BTC per block. It might seem like an incredibly generous incentive. Still, the network was only beginning to grow at the time, and nobody knew for sure if people would continue to consider the idea worth investing their computer processing power in the Bitcoin blockchain to keep it alive.
Another fact to remember is that the all-time high market price for that era in June 2011 was $31 per BTC, but that ‘bubble’ later burst, and Bitcoin was down to $2 by the end of the year. Nevertheless, mining eventually turned out to be much more lucrative for those who got in early, which is a significant part of why Bitcoin critics call it a ‘Ponzi scheme’.
The halving of the other Bitcoin occurred on July 6, 2016, as block number 420,000 was created, and miners started accumulating 12.5 BTC for each new block, which is the current rate. The third halving would again halve the amount, decreasing the block reward to just 6.25 BTC, or around $45,000, despite the current market price.
The influence of halving in Bitcoins Price
Bitcoin halving effectively cuts off BTC’s supply, making the commodity more scarce. If there is competition, the price is likely to increase. There are a few historical precedents, too. On November 28, 2012, the day of the first halving of Bitcoin, the price of the cryptocurrency rose from $11 to $12 and continued to increase over the next year, hitting $1038 on November 28, 2013.
Approximately four years later, a month before the second halving, the price of Bitcoin started to follow a similar, bullish trend. It rose from $576 on June 9 to $650 on July 9, 2016, the day the incentive for the block was halved for the second time in the history of the asset. Again, but with occasional uncertainty, BTC managed to accelerate through the next year and traded at $2526 on July 9, 2017.
The landscape has changed significantly over the past four years, as cryptocurrencies and Bitcoin, in particular, have become an integral part of mainstream crypto news. Still, some people might be tempted to take the opportunity, particularly given the previous trends seen around Bitcoin halvings.
2020 Bitcoin Halving
It is happening in May. The date at this stage is not 100 per cent certain because the time taken to produce new blocks could be accelerating or slowing down. The network delivers, on average, one block every 10 minutes. The very last halving is expected to occur sometime in the year 2140, with the mining of the 21 millionth BTC. When that happens, miners will stop collecting block bonuses but will maintain the remaining source of income fees charged by the transactions they receive as well.
Bitcoin halving is at the very core of the protocol. Halving makes sure its deflationary quality is retained. This ensures that the ideology of bitcoin remains opposed to fiat currency, which by its nature is centrally controlled and inflationary.
Satoshi Nakamoto had ensured that the internal tokenomics will still sustain the network even after all the Bitcoins have been mined out. It’s still too early to tell whether Bitcoin will follow its historical precedent and increase its valuation, or whether it will be held back by the new factors.
Bitcoin might have changed a lot since it was launched, but its global impact is yet to be seen. Who knows what all changes it can bring to the world.
