The act of cutting a miner’s reward in half to ensure that there is a limited supply of Bitcoin is known as “Bitcoin halving.” It literally translates to “halving” a miner’s payoff. Twenty-one million Bitcoins can only be mined. When that number is reached, the network will cease producing more Bitcoins. Bitcoin is sometimes referred to as the “digital gold” because, like gold, it will eventually run out of reserves due to complete mining. An approximate 4-year gap passes between Bitcoin halving events.
To put it more simply, the “halving” happens after every 210,000 blocks of Bitcoin are mined. After the Bitcoin halving procedure is completed successfully, mining gets harder, which lowers the mining reward by half. The halving event has happened three times since the enigmatic Satoshi Nakamoto created Bitcoin in 2009. Although the effects of the most recent halving are still unknown, there are hopes that the procedure will give Bitcoin a significant boost in the right direction.
How is a Bitcoin halving implemented?
A Bitcoin halving lowers the rate at which new coins are created, which in turn results in less Bitcoin being available. This process of first halving the reward given to Bitcoin miners and subsequently halving inflation further simplifies the halving event. This ultimately causes the coin’s supply to decline and its demand to rise. As a result of the rising demand and subsequent high price of Bitcoin, miners continue to receive incentives. This is true even though the halving process results in smaller rewards because it raises the value of Bitcoin.
These halvings have a way of affecting investors because other low supply commodities like gold, can experience high demand and their prices are pushed higher, following the law of supply and demand
Why is Bitcoin halving significant
Bitcoin halvings are very important because they have a direct impact on the price of the cryptocurrency and have a definite effect on the total quantity of coins in circulation. With a self-driven rate of inflation, the continuous supply of new Bitcoins combined with the demand and supply growing every four years, produce a predictable economic pattern.
During the initial phases of the network, block subsidies are used to compensate Bitcoin miners more than transaction fees. Because of the disinflationary monetary policy of the Bitcoin network, the block subsidy decreases by 50% roughly every four years.
In light of current events and the history of Bitcoin halvings, it can be concluded that these occurrences have increased the value of the cryptocurrency. Even though there have only been three Bitcoin halvings thus far, it is still unclear how this year’s halving will turn out and how it will impact other virtual currencies. Before the cryptocurrency could effectively control the consequences of halving block rewards from the two BTC halving events that took place prior to the most recent one, nearly a year had gone.
How many halvings of Bitcoin have happened?
There have only been three reductions in the value of Bitcoin. November 28, 2012, marked the first halving, and July 9, 2016 marked the second. Following the most recent halving on May 11, 2020, the price of Bitcoin remained just under $9,000 at that time. But as of November 2020, the price of Bitcoin had increased to about $18,000. It is anticipated that the next Bitcoin halving will take place in the spring of 2024.
However, On the 11th of May, 2020 during the height of the COVID-19 pandemic, Bitcoin underwent its third halving. 6.25 BTC was awarded as a block reward for this Bitcoin halving. Although the cryptocurrency market and traders experienced high tension and anticipation, the event took place with no issues.
When will Bitcoin next undergo a halving?
It’s not quite clear when the next halving will occur. But because it occurs about every four years, the next halving is predicted to occur in 2024 at block 840,000. It is anticipated that all Bitcoin will have been mined by 2041, at which point there won’t be any more available.
Will Bitcoin halving affect price change?
Naturally, the halving will affect the price of Bitcoin. It’s the main observable result of earlier halvings that has been particularly noted. The maximum number of Bitcoins in circulation is 21 million. Right now, mining a single Bitcoin costs $12,525. Since it is comparatively unprofitable to mine new Bitcoins at any price below this threshold, the majority of miners have been forced to stop.
After the sell-off on March 12th, which caused the price of Bitcoin to drop to nearly half of its initial value, the coin has managed to rise back up to 90% according to price.
The impact of Bitcoin’s halving hasn’t always been felt immediately in recent times. After the initial halving on November 28, 2012, the price of Bitcoin was approximately $12. But a year later, its price had increased by 8,500% to roughly $1,032. This is also one of the extremely rare occasions when the volatility of bitcoin’s price movement tends to work in its favour.
When Bitcoin experienced its second halving event in 2016, its price was approximately $650. After 1.5 years, the price increased to reach an all-time high of $20,000 or more in 2019, with institutional investors playing a major role in the price rise.
Following its third halving on May 11, 2020, the price of Bitcoin was marginally less than $10,000. Bitcoin experienced a tremendous surge, crossing $60,000 as of March 2021. Given that the mining reward was last halved in May 2020, investors’ fear of missing out on something likely contributed to the price increase of Bitcoin instead of the mining reward being halved.
Blocks of confirmed transactions must be “hashed” as Bitcoins are mined in order for them to be added to the blockchain, an ever-expanding series of blocks. The number of miners required to carry out a 51 percent attack would increase with the network’s hash power.
The hash rate is measured in trillions, quadrillions, and even quintillions of hashes per second. Put simply, hash rate is a general measure of the processing power of the Bitcoin network.
Conclusively, the main factors influencing bitcoin prices are supply, demand in the market, accessibility, and rival cryptocurrencies. Roughly 88.5% of the Bitcoin supply had been mined as of December 2020. The market’s demand is directly correlated with trading volume and price growth. Block reward halving, according to some, will tighten supply, boost the price of bitcoin, and create a bull market.
Based on the history of Bitcoin, we can conclude that while the most recent halving has had a positive impact on the market, it has also caused traditional fiat currencies to lose value on cryptocurrency exchanges. In the meantime, the less money that miners make could drive away the least productive ones, which would result in a sharp decline in the amount of processing power available to the Bitcoin network.
Bitcoin miners receive rewards that are halved until they are zero. The scarcity of bitcoin, according to proponents of the cryptocurrency, contributes to its value and makes it a possible “hedge” against other currencies that may depreciate during economic downturns.