Bitcoin Halving – What you need to know
February 05, 2020
Bitcoin halving is an event where the reward of mining a block of Bitcoin gets halved every 210,000 blocks (around four years) until the maximum limit of 21 million reaches. Since the Bitcoin supply is finite, there is an increase in demand for Bitcoin after every halving.
Bitcoin was one of the first well-known digital assets anonymously introduced to the world. People who had taken a slight interest in mining Bitcoin have become rich now, and the rest are possibly in regret. In the past, every halving has led to a slight increase in the price of Bitcoin. Even during pre-halving, the price of Bitcoin was on the rise. So if you are looking to invest in Bitcoin before the next halving event could be an ideal time.
Before we predict how beneficial Bitcoin halving is, let’s have a look at what Bitcoin halving is and how it works.
What is Bitcoin Halving?
Bitcoin is a digital assets that is usually mined to increase the supply and verify transactions. To mine bitcoin, one must use CPUs and electricity to generate multiple blocks. For such mining, a certain reward is set (initially 50 BTC), so that the miners feel it is worth their resources. The reward also should not be too high that there is an oversupply, and the limit of 21 million bitcoins crossed.
Satoshi Nakamoto created Bitcoin, and he didn’t want Bitcoin to die within a couple of years. He wanted it to be self-sustaining similar to mining precious metals. So over time, mining Bitcoin was made difficult, and the rewards kept decreasing by 50%.
The first halving occurred in 2012, the second in 2016, and the third will happen in 2020.
Bitcoin halving mainly encourages users to save up their coins for the future rather than spend it. It is an inflation control technique to ensure Bitcoin sustains for a long time.
Generally, the lesser the coins are left, the higher the price should go.
How Does Bitcoin Halving Work?
- The Bitcoin code has a line that said that after every supply of 210,000 coins, the reward comes down by 50%.
- Every transaction needs verification done in groups called ‘blocks’.
- Every block processed and generated gave a reward of 50 BTC to the miner initially. After the first 210,000 blocks, the reward became 25 BTC (in 2012). And it will reduce to 12.5 BTC in 2020.
- For every block and transaction verified, the reward is decided, and it changes at every halving.
- How is Bitcoin halving beneficial?
- Bitcoin halving affects its market value, as more and more coins are released to the network, the demand increases. With fewer coins remaining and potential miners dropping out, the value of Bitcoin will rise.
With rewards getting halved every four years, there might come a time when miners feel that their rewards are not well compensated and stop mining altogether. People who mined and saved up their BTC since the start is at a higher advantage than others. They need to keep holding on to their coins and wait for the price to soar.
If the rewards were still at 50 BTC, there wouldn’t be any more supply of Bitcoin. Hence, Bitcoin halving extends the life of Bitcoin. If fewer people mine Bitcoin in the coming years, then it will take a long time to reach the target of 210,000 coins meaning the reward will remain the same for a long time.
Bitcoin Halving History and What You Could Expect in 2020
In the past, Bitcoin halving has led to a slight increase in its value and has helped reached certain highs in the particular year.
Some analysts and experts are positive about the halving, as it can lead to an increase in the value of Bitcoin. While other industrial experts claim that there won’t be any effect on the value, and it will just be a non-eventful day.
Some say that the Bitcoin bull may or may not run this year. Many analysts are looking forward to the halving. Demand for Bitcoin has not always led to an increase in the price. There are many altcoins or other digital assets coins in the market, and people may shift over to them.
If history repeats itself, Bitcoin prices may start soaring in April 2020, and more traders might start purchasing some coins leading to even more increase in the price and demand.
Will Bitcoin Come To An End?
If the rewards keep halving like they do every four years at one point, the miner may feel that it is not worthy to mine Bitcoins anymore. Bitcoin mining requires a certain amount of electricity and computer resources, and the miners might feel that the rewards don’t compensate them enough. They may switch over to mining other digital assets or begin digital assets trading.
Many large organizations might still continue to mine Bitcoin, and this will lead to less decentralization of the network.
With the supply of Bitcoin coming to an end in 2140, there might be an increase in demand for Bitcoin. By that time, the digital assets market may be more stable and valued.
People who mined the coin early or who purchased it first have a considerable advantage over others; the blockchain is itself built that way. There are multiple digital wallets available that can hold your BTC securely.
Even if the number of miners reduces or become null, Bitcoin will stay alive by trading and various digital assets transactions.
Bitcoin halving is the main reason why Bitcoin is at the rate it is today. If there were no halving, Bitcoin would still be worth only a couple of dollars.
In the past, many users have bought the coins at a lower price and sold it once it reaches a good profit. These people haven’t benefited from BTC. Such people do short term trading and earn profits from the rise and fall of various digital assets.
We can only wait and find out what the next Bitcoin halving will do and speculate based on various predictions.