Bitcoin Halving: What’s it About and How Does it Affect the Cryptocurrency?
Bitcoin, the world’s most famous (or infamous) cryptocurrency has halved. The highly hyped event happened during the early hours on Tuesday and has seen the amount of new Bitcoin being created cut by half.
The event which happens roughly every four years happened for the third time since Bitcoin was created in 2008. But what is the halving about and what does it mean for bitcoin users/enthusiasts?
Bitcoin Halving – Regulating an Unregulated Currency
The creation of the bitcoin and other cryptocurrencies was aimed simply at having a currency that is secure, private and independent of third-party institutions like banks and governments.
Created by the anonymous Satoshi Nakamoto, the currency was set to a hard supply cap of 21 million coins. This Bitcoin is mined using high-powered computers and complex algorithms by ‘miners’ – programmers who mine the currency.
Now, every four years (after 210,000 blocks), the bitcoin halves as a way to reduce the reward given to these miners. Prior to today, miners get 12.5 coins per block mines, but now that reward has been reduced to 6.25 coins per block following the halving earlier today.
The first halving took place in November 2012, the second in July 2016 and the next halving is set to take place in May 2024.
Now you might be wondering, I’m just a bitcoin owner and dealer and not a miner, so how does it affect me?
The dwindling Bitcoin mining rewards allow for new BTC to enter the supply and ensure that supply doesn’t outpace demand. So now, only 900 Bitcoin will be produced per day (previously1800) and it will be twice as hard for miners to produce Bitcoin. This was supply as regulated to demand. This helps to control and mitigate the effects of inflation.
So unlike you may have thought, Bitcoin is not infinite – although, with this process, the mining cap won’t be attained until the year 2140 except the protocols are changed between now and then.
Why all the Hype Around it?
Experts of the cryptocurrency say that the reduction in supply helps underpin its value, making it a safe haven against fiat currencies in situations of financial instability. So if the supply reduces and demand remains constant or increases, prices will increase.
Previous halvings also support this belief. After the first halving, bitcoin price soared from $11 per bitcoin to $1,100. The second halving saw the price rise from about $700 to $20,000. Based on this, experts are betting on the cryptocurrency to have a bullish run.
In fact, this was said to be one of the reasons for the price surge in recent weeks. About 2 weeks ago, Bitcoin touched $10,000 for the first time since February.
However, this rise might not be as immediate as is touted by some because Bitcoin currently trades at $8,926, still hovering around the $9,000s.
But experts are still betting on it. The halving is expected to see Bitcoin’s inflation rate drop to 1.73%. This is lower than the inflation rate of gold and even the global inflation rate of about 3.56% (which is touted to rise) according to statista.com. This fact could see a significant impact on the cryptocurrency’s price.
However, some investors have highlighted that halving could make the cryptocurrency less attractive to miners and many could have sold their equipment. Also, the COVID-19 situation might mean that some consumers will have to liquidate their digital assets to sort out their debts and financial need.
While none of it is certain yet, it is sure that the bitcoin has halved.
