Bitcoin halving is the halving of reward for mining bitcoin after each set of 210,000 blocks is mined
Ever since its inception in 2008, the bitcoin price has broken many records and invaded the finance space with a massive blow on traditional investors. After its popularity, many enthusiasts jumped into investing in cryptocurrency, and eventually, some even became bitcoin miners. But if the price and the value of bitcoin remain the same, it won’t attract more investors. Therefore, similar to gold, bitcoin should become unique and be at scarcity to keep its value afloat. That is where the concept of ‘bitcoin halving’ was introduced.
To understand the basics of bitcoin halving, you should first know what a bitcoin is and how it is created and valued. Bitcoin is a famous cryptocurrency that is very popular among crypto investors. It is created by a process called bitcoin mining. Designated bitcoin miners use their computers and computational knowledge to crack mathematical and algorithmic equations to get their hands on bitcoins. Once they mine a bitcoin, they get a certain level of share from its price. The smallest unit of bitcoin is called Satoshi. It is divisible to eight decimal places (100 millionths of a bitcoin). Bitcoin price can even be divided into more decimal places if required and if the participating miners support the shift. Bitcoin halving plays a big role in bitcoin mining and the value fixation process.
What is Bitcoin Halving and How Does it Work?
Usually, when a bitcoin miner is engaged in solving the mathematical complications, he/she add the next block by using hardware to crack the puzzle, generating a random 64 character output called ‘hash.’ Bitcoin miners earn a share of bitcoin by carrying out the mining process. Bitcoin halving is the halving of reward for mining bitcoin after each set of 210,000 blocks is mined. By keeping a tab on the number of bitcoins mined, we can ensure that the amount of bitcoin circulation doesn’t blow up exponentially all of a sudden when the price increases.
Bitcoin halving happens whenever the miners have mined over 210,000 bitcoin blocks, or at an average of every four years. Bitcoin halving is remarkable since it reduces the share of profit for bitcoin miners. The first bitcoin halving happened in 2012 when miners got their hand on the first set of 210,000 blocks. By that time, the reward was cut to 25BTC. In 2016, the next bitcoin halving happened, reducing the reward to 12.5 BTC per block. The most recent bitcoin halving happened on 11 May 2020, which cut down on the profit by another half and reduced the share to 6.25 BTC. The next bitcoin halving is expected to take place in 2024 when over 840,000 bitcoin blocks must’ve been mined.
Scarcity Drags up the Price
Bitcoin is already set with its last to-be-mined block. The last block will be uncovered in 2040 and post that, the bitcoin’s future remains uncertain. But until we reach the mark, the bitcoin’s value will keep growing because of bitcoin adoption and its scarcity. Yes, the reason for keeping a bar and reducing the profitability when 210,000 bitcoins are mined every time is to keep its scarcity growing. Ten years back, bitcoin miners got 5 BTC as profit for every bitcoin unraveling process, but now it has reduced to 6.25, driving the scarcity and value of bitcoin higher.
Bitcoin mining consumes a hell of a lot of electricity and requires talented candidates to crack mathematical equations. So every time a halving occurs, it reduces the profitability of bitcoin miners. The only way to equate the mining fees is by driving the bitcoin price to the maximum.
Experts have observed a routine every time bitcoin halving took place. Bitcoin halving was followed by a sudden price hike. Eventually, the hype dies away, and the bitcoin price crashes in the near future. Later it also leads to long crypto winters.
The String Between Bitcoin Halving and Bitcoin Price
As mentioned above, bitcoin price is directly linked to bitcoin halving. Every time bitcoin halving happens, the price rallies at a high value.
- During the first halving in 2012, the bitcoin price was at US$11. Within a year, it reached US$1,100.
- In 2016 when the second halving tool place, bitcoin price fluctuated between US$500-1,000 for a few months and then shot up to reach a record high US$20,000 in December 2017.
- The recent bitcoin halving happened in May 2020 when the price was around US$20,000. We are still at the third halving’s bubble which is causing both spikes and dramatic crashes.
The last set of bitcoins is anticipated to be mined by 2040. After that, bitcoin miners won’t get their shares in form of BTC. Instead, they might adopt an easy method of getting paid by the network users. People who buy and sell bitcoins will incentivize miners to make them continue their job.
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