It’s been done twice before and in mid-May the third time is taking place, to reduce the number of new bitcoins being generated. Bitcoin halving, an event that occurs roughly every four years or more exact after the mining of 210 000 “coins”. What is the background of it all? At Fyggex, we wanted to understand where it comes from and what it means.
Background behind the halving/ halvening?
To make some sense of it, let us start from the very basics by explaining the “mining”. When trying to understand what a Bitcoin (BTC) as a virtual currency is, we can look into three things with it:
• Newly credited bitcoins
Above combination forms a block, which later in the process becomes a part of a “chain”, simply called blockchain.
Disputed creator Satoshi Nakamoto wanted the amount of Bitcoins to be limited just like gold, so as a consequence it makes sense that the name of the “workers” became “miners”. Miners are the people who try to create more bitcoins with their computers and servers. The Bitcoin Blockchain is kept secured by merging the computing power of its miners. Anyone of us can become one, if we just have the equipment.
What is the benefit to get into Bitcoin? By verifying a block of transactions correctly you get rewarded with brand new Bitcoins and as one (1) Bitcoin value all time high used to be almost 20 K USD, it can be lucrative to start considering it.
Bitcoin-halving, what is the meaning behind it and why it is necessary?
2009 the first Bitcoin launched with a total amount of 50 BTC. Every 10 minutes 50 new Bitcoin blocks were released and continued for four years until 210.000 Bitcoin blocks had been correctly verified by the Miners.
Satoshi Nakamoto created a halving schedule for two reasons:
• Inflation. Keep the number of BitCoins that’s in circulation under control.
• Limited just like gold. No more than 21,000,000 bitcoins will ever be produced.
The schedule is a pre-set rule placed inside the Bitcoin’s code. To decrease the mining reward with 50% after the mining of 210,000 Bitcoins blocks, that means after roughly four years.
The change in BTC since 2012
• The first halving occurred in November 2012 and the amount of New Bitcoin blocks decreased from 50 to 25 BTC.
• The second halving occurred in 2016 and the amount of New Bitcoin blocks decreased from 25 to 12,5 BTC
• The third one is less than three weeks away (today is Monday 27th April 2020) , meaning miners have soon reached the mining limit at 630.000 blocks.
And the estimated limited amount of 21 Million Bitcoins will be mined out by 2140
The price of bitcoin following the “halving/ halvening”
Since there’s only two previous halving’s, the only thing we can do is assume the effect of Bitcoins future price and there are three scenarios possible.
1. You can call it the most anticipated scenario. The reward for miners will decrease from 12.5 BTC to 6.25 BTC, leading to the creation of new Bitcoins becoming a scarcity. Simply put is that the demand will be naturally higher than the supply.
2. If above is not happening, the Bitcoin’s price is not affected. The decrease in the reward will not play out as many were anticipating.
3. The “will never happen” scenario. The expectations are too high and instead the halving eventually ending-up with them selling their Bitcoins out of disappointment?
As an investor, should you be nervous? Changpeng Zhao, the founder and chief executive of one the world´s biggest bitcoin and cryptocurrency exchange company Binance, told the news site “BlockTV”:
“I personally believe the halving has not been priced in” and adding that he “doesn’t usually give market predictions” because there is only a 50-50% chance he is right!
Will history repeat itself? That’s the question on everyone in the crypto community’s mind.
Excitement and speculation regarding the possible bullish price effect, when or will it happen? Studies show that the Bitcoin’s price soared after the two previous halving’s, but that gives us no guarantee it will happen a third time around. So you “bitcoiners” out there, keep it cool and stay patient!
*Disclaimer: Fyggex, does not give any guidance, advice or recommendations to neither invest or not in any available cryptocurrency directly or indirectly via any trading platform, exchange or provider. Our sole purpose is to make you aware of the related real or potential risks and opportunities so that you can make your own research prior to any financial decisions you may want to take. Past performance and position are not a guarantee of risk-free future returns.
www.quora.com/Bitcoin-has-crossed-its-all-time-high-price-What-do-you estimate-the-Bitcoin-price-will-be-in-2020-and-why-do-you-think-so cointelegraph.com/explained/bitcoin-halving-explained
Featured Image: Mohamed Hassan