Bitcoin halving (or halvening) is a drastically important event in the cryptocurrency world. It happens after every 210,000 blocks are mined and halves the reward that miners receive for discovering new blocks. With the current activity of Bitcoin’s network, it occurs approximately once every 4 years and implies the decline in new BTC supply for the market, i.e. Bitcoin’s inflation.
This year it will take place in May and be the third one since the launch of BTC 11 years ago. The exact date of the halving depends on when block number 630,000 is mined, taking into account that one block appears approximately every 10 minutes totaling 144 blocks per day.
In this article, we are going to take a deeper look at what this event means and why it is so important for all blockchain enthusiasts and the industry in general.
What is the “Bitcoin halving”?
The total amount of Bitcoins, as well as the halving, is predetermined by the protocol of the Bitcoin blockchain and limited to 21 million. They are released as block rewards with a fixed number of coins that miners receive for maintaining and securing the network by adding new blocks to the blockchain. Programmed issuance has some significant advantages: it helps people to understand the current Bitcoin inflation rate, to know the future inflation rate, how many coins circulate in the network, and how many of them are left to be mined.
Bitcoin halving is the event when the number of newly minted remunerative bitcoins is cut in half. When the Bitcoin network was initially launched in 2009, miners got 50 BTC as a reward for generating new blocks. That number has already been halved two times since then. This year it will drop from 12.5 BTC to 6.25 BTC per newly discovered block.
The halving is a necessary inflation control measure that makes the system stable. Without it, miners could possibly make off with all block rewards thus crashing the coin price.
Possible effect on Bitcoin’s price
The 2020 halving is drawing a lot of attention mostly because the supply of new coins will drastically fall. Fewer coin generating can lead to scarcity and higher prices if the demand remains strong. Two previous halvings that led to a gradual price increase can serve as proof. It is also possible that the price can run high before the halving if people decide to buy BTC anticipatorily. So the value of BTC becomes really volatile closer to the event and will depend on the overall demand.
Another fact that affects the Bitcoin price is that the difficulty of producing new blocks increases with time. Mining requires special expensive hardware and lots of electricity so many miners liquidate the vast majority of their coins as soon as they get them to cover the expenses.
Reducing rewards decreases their revenue, so some of them may not be able to keep up with the operational cost and cancel their power contracts. However, this will enable other miners to get a larger market share and only sell their bitcoins at an increased price.
What will happen after the last block is mined?
Bitcoin operates on a deflation model, which means that after the last halving the issuance of new bitcoins will stop. With the current activity that should happen approximately in the year 2140.
The block reward is an essential component of the Bitcoin protocol that ensures the security of the system. After the last bitcoin is mined, transaction fees will provide the security, and miners will only be able to earn through them, so they may become more expensive.
Bitcoin is still too volatile and it is impossible to make a shrewd guess of the upcoming halving impact, even having the examples of the previous two halvings. However, the past experience gives its users big hopes for future profits. And since Bitcoin domination is pretty high, it is an indisputable leader of the market making other players follow.
Traders can expect increased volatility before and after the event, and miners must be ready to earn lower rewards. However, those who hold the coins long enough may be well rewarded for their patience when and if the new bull run begins.
The same applies to almost all other altcoins as well, including Elitium (EUM) targeting the luxury market and aiming to make it more transparent, secure and efficient with the help of blockchain technology.
Note that this is purely educational content and financial advice. Cryptocurrencies are extremely volatile and unpredictable, so always make your own research before investing.