What is Bitcoin Halving?
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When people hear bitcoin halving, they automatically think it sounds like a complicated occurrence. Still, it is just a simple process of decreasing the mining rewards to half; this is event occurs to maintain the supply of Bitcoin. Since Bitcoin supplements a new block about every 10 minutes, the halving transpires about every four years. This halving event is built into the code of Bitcoin and happens every 210,000 blocks; a block is a record of all Bitcoin transactions. In the case of Bitcoin, blocks are added to the Bitcoin blockchain through a concept called proof of work. Using PoW, miners solve complex mathematical problems and once solved, it produces a hash. After miners successfully mined a block, miners are rewarded with BTC based on the amount of hash power they had in that block.
Before we jump into the current halving, let’s take a few steps back in Bitcoin’s history. Bitcoin’s blockchain began with a block reward of 50 BTC per block. Since the early stages, the Bitcoin network has changed dramatically as computational power has increased and many miners have been added to the Bitcoin network. Like I mentioned before, Bitcoin halving is coded in, which takes about four years to reach. In 2012, Bitcoin was reduced to 25 BTC per block; Bitcoin was decreased to 12.5 BTC per block in 2016. This year’s halving the block rewards will fall from 12.5 to 6.25 Bitcoin. The fourth halving is anticipated in 2024, where awards will be cut in half to 3.125 BTC, and so on.
Why does this event occur?
Bitcoin’s quantity is restricted to only 21 million BTC, no more than that amount can ever exist. Bitcoin fundamentals run on a model of deflation, which means that slowly, Bitcoins will be released over time until the quantity runs out. Today there are currently around 18 million BTC in circulation. Bitcoins model differs that of fiat currencies, which use an inflationary model. Inflation is a model where banks can print and issue units of money at will, meaning that there is no supply cap. But with Bitcoin, no one can randomly inflate Bitcoin’s supply since there is a supply cap. The Bitcoin halving event is intended to prevent inflation. This event prevents miners from mining all the Bitcoins too quickly where the supply depletes.
Will this halving impact BTC price?
Theoretically, if the BTC supply slows down and demand stays constant, price if BTC rises. Historically, the BTC halving event has been interrelated with an increase in the price of BTC. The first halving event took place on November 28, 2012, where the price of Bitcoin was about $11. One year after the halving event, Bitcoin’s price increased to about $1,150. The second halving event happened in July of 2016, where the price of Bitcoin soared to $20,000 the next year. To predict if this will happen this of May is difficult. The crypto space is much different now and has matured significantly.
If history repeats itself, we can see Bitcoin’s price increase in May 2020. This event might cause more traders to start buying BTC or other altcoins which can potentially lead to even more increase in the price and demand.
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