On April 9, 2024, within the next ten days, an important event called the Bitcoin halving will take place. The global crypto market, currently worth approximately $2.81 trillion, is holding its breath in anticipation.
In simpler terms, Bitcoin Halving is a built-in process that takes place approximately every four years, reducing the reward for miners verifying transactions by half. Currently, this reward stands at 6.25 Bitcoins per block, but it will decrease to 3.125 Bitcoins around April 20, 2024. This reduction in rewards is designed to control the circulation supply of Bitcoin, which is capped at 21 million units.
On a superficial view, the halving event appears to solely impact miners, who will experience a 50% decrease in their rewards for verifying Bitcoin transactions per block. However, the implications of this event extend beyond the mining community. It could cause volatility in the cryptocurrency market, influence investor behavior, potentially boost the worth of emerging digital currencies, and possibly leave others defunct.
In this piece, we’ll delve into the essentials of Bitcoin halving: who is affected, what happens, when it occurs, why it matters, and how it influences the cryptocurrency scene.
Bitcoin halving: The economics of demand and supply
Bitcoin’s halving, as previously mentioned, is a pre-planned event happening approximately every four years. During this event, the reward for mining new blocks is decreased by half. This reduction was instated when the initial “genesis” block was added to the Bitcoin network. The founders of Bitcoin had capped the total supply at 21 million coins, meaning that no more than this amount could be produced through mining.
Gold and diamonds, two naturally occurring substances, were first discovered by early humans for their value. Mining of these precious items has continued extensively ever since. Over time, mine owners gained control over their supply in order to preserve their scarcity and, as a result, the market price. This way, they ensured that gold and diamonds retained their high value.
In a comparable manner, Satoshi Nakamoto, the anonymous innovators behind Bitcoin and Blockchain technology, initiated the Bitcoin network in 2009 with an inaugural block offering 50 Bitcoins as a reward for miners. As a decentralized entity, the blockchain software was engineered to permit only 21 million Bitcoins to be produced in total. Every four years, the incentive for mining decreases by half, making it an ingenious method for controlling Bitcoin’s supply and demand, preserving their value, and prolonging the bullish trend. Theorists anticipate that these halving events will persist until 2140 when the entire 21 million Bitcoins cap is reached.
Bitcoin halving: A whirlpool event in crypto market
Over time, the unpredictable nature of the Cryptocurrency market has become notoriously famous for its extreme volatility. Previous successes or failures of a specific cryptocurrency do not guarantee future results, and even experienced investors have struggled to make accurate predictions. In such uncertain conditions, a halving event functions like a powerful vortex, drawing in all digital assets and causing significant disruptions throughout the entire Cryptocurrency market.
The first halving occurred in 2012 where the reward for mining was reduced to 25 BTC.
In simpler terms, the bitcoin halvings that took place in 2016 and 2020 led to a surge in its price and drew in new investors. Let’s examine how the BTC market performed during these previous halving occasions.
Halving 2016:
On July 9, 2016, the second bitcoin halving took place, resulting in a decrease in mining rewards from 25 to 12.5 bitcoins. Although this reduction lessened mining profits, it facilitated the emergence of more economical mining operations. In turn, larger players entered the mining scene. Prior to the event, Bitcoin was priced at $650.96. Subsequently, it reached a record-breaking price of $20,089 approximately 526 days post-halving.
Halving 2020:
On May 11, 2020, marked the third Bitcoin halving, an event that took place during the intense coronavirus pandemic. Following a steep drop in Bitcoin’s price from $7935 to $4826 on March 12, 2020, this reduction occurred. As a result of the halving, the reward for mining a new block was lowered to 6.25 Bitcoins. During the halving, Bitcoin was priced at $8787. Approximately one and a half years later, it reached an unprecedented high of $69,000.
Is halving good?
Historically, experts explain that when the supply of Bitcoins is reduced by half through halving, it tends to boost Bitcoin’s value and give rise to new cryptocurrencies. Given Bitcoin’s scarcity, these events typically lead to a bullish market for it. Miners, however, need to focus on maximizing efficiency and upgrading their mining equipment in preparation for an anticipated increase in miner consolidation.
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2024-04-09 16:52