Have you ever heard people talking about Bitcoin halving? Are you confused about what they are talking about or why it is important? Don’t worry. I’m here to help you understand in simple terms what bitcoin halving is, when it happens and why.
Just keep on reading.
What is Bitcoin mining?
Before we talk about bitcoin halving, we have to know about Bitcoin miners and mining.
Bitcoin and blockchain won’t be possible without miners – people who make sure that you’re not spending cryptocurrencies you don’t actually have.
They verify transactions, bundle them into a block, and add it to the blockchain. For their efforts, these miners get a reward – newly created Bitcoin each time they solve a block or take part in the solving.
It sounds simple in words, but to add a block on the blockchain and get their reward, miners have to solve a complex mathematical problem.
It’s sort of a guessing game but with a 64-digit hexadecimal number. All you need to know is that it requires a lot of computing power and electricity and that it gets harder and harder to solve these mathematical problems.
Back in 2009, the reward for mining was 50 bitcoins per block, but that is no longer true. We’ll uncover the reason why in a few moments.
What is Bitcoin halving?
Satoshi Nakamoto, the creator of Bitcoin, specified that Bitcoin has a limited supply of 21 million. That means that when the 21stmillion Bitcoin is mined there won’t be possible to create new Bitcoins. In addition to this, the miners won’t get bitcoins for mining blocks and adding them to the blockchain.
In addition to this, Satoshi Nakamoto established the reward which miners get solving a block will be halved every 210,000 blocks. That’s what we call bitcoin halving.
I already mentioned that the initial reward was 50 bitcoins per block. However, when the 210,000 block was mined in 2012, Bitcoin was halved. That means that instead of 50 bitcoins per block, miners get 25 bitcoins per every solved block.
The same thing happened in 2016 when the miners mined the 420, 000 block. So, currently, we’re in reward era №3,and each new block gets the miner 12.5 bitcoins.
Experts estimate that there would be 34 reward eras. The closer we get to the 21 million limit, the smaller the reward will be. For example, during the 33rdreward era, each mined block will bring 0.00000001 bitcoin to the miner.
Era 34 will bring no extra Bitcoins for the miners, and a lot of people speculate that miners might lose interest in solving blocks and keeping the blockchain afloat. However, miners probably will rely on transaction fees to cover the cost of solving blocks.
How long does Bitcoin halving take?
On average, miners mine six blocks in an hour. That’s 144 blocks per day and around 52,000 blocks per year. Since halving happens every 210,000 blocks, we can estimate that it will happen every four years (roughly).
The last halving was in 2016, so the next one will probably be somewhere in 2020. That’s when the reward will become 6.25 bitcoins per mined block. The reduction will continue every four years until the last bitcoin gets mined somewhere in the distant 2140.
Why is Bitcoin Halving necessary?
If you’ve been paying attention until now, you have probably realized that miners will get significantly less for their efforts as time goes by and the difficulty of solving a block increases.
So, why does it have to happen? Can we keep the reward the same or increase it?
The answer lies in the basic economic principles of supply and demand. When consumers are interested in buying something, the supply for the commodity raises as well as the price. However, as the price rises, the demand goes down because people don’t have enough purchasing power due to the increased prices.
Let’s take banks, for example. A lot of banks can print new money when they need to and release them in circulation. However, this action leads to inflation. In other words, the currency is not as valuable as before because you can buy fewer things with it.
And while currencies can withstand such fluxes because governmental bodies take action to counteract them, Bitcoin doesn’t have the same luxury.
So, to control inflation, the supply of Bitcoin has to be limited. If too many Bitcoins are produced at once, the supply might be more than the demand, and as a result, the price of Bitcoin will plummet.
Let’s make another example. Think about gold. This piece of metal is only valuable because people consider it valuable. The same goes for Bitcoin. If people didn’t believe that these two things have value, they wouldn’t be of any interested whatsoever.
In addition to this, gold is rare, hard to extract, and has a limited supply. That has allowed gold to retain its value for hundreds of years and remain an international means of exchange.
Bitcoin hopes to achieve the same, and that’s why the mining of new Bitcoin must be halved to control the supply.
How does Bitcoin halving effect the price of Bitcoins?
So, what will happen to the price of Bitcoin when the next halving comes? Will the price go up, down, or remain the same? Well, all these scenarios are likely, and we don’t have a crystal ball to predict the future
The previous halving in 2016 didn’t register any serious spikes in the price of Bitcoin. Before the halving, the price was $650 and a week later – $670. However, in 2012, Bitcoin got from $13 to $230.
What will happen in 2020 depends a lot on how people react to it and how much they want to own Bitcoin.
The Bitcoin halving is a known event, and you’ll know the exact date several weeks or days before it happens. So, some experts don’t foresee any drastic ups or downs in the price.
But, it’s also worth remembering that with each halving fewer and fewer Bitcoins get created. In other words, the available supply of Bitcoin is not as big as before. Not to mention that according to experts around four million bitcoins were lost, and it would never be possible to recover them.
So, it’s very possible that the price might skyrocket if the demand for Bitcoin gets bigger than the current supply.
In general, people do not believe that halving can lower the price of Bitcoin. While a sudden crash is unlikely, the future of Bitcoin depends on the people’s trust in the cryptocurrency and how valuable they consider it.
It’s worth mentioning that Bitcoin is not the only player on the table, and people might consider other cryptocurrencies more valuable than Bitcoin.
So, Bitcoin halving is a necessary event that reduces the amount of new Bitcoins created per solved block. The next one will happen in May 2020 by predictions, so you have plenty of time to decide if you want to jump on the ship or leave it.
What do you think about Bitcoin halving? Do you any predictions on how Bitcoin’s price will change after 2020’s halving? Share your thoughts in the comments.