Bitcoin halving is a major event that can change the value of bitcoin permanently. Why is this rarely covered event so important for Bitcoin's future? This guide will explain to you the importance of Bitcoin halving, and how you can benefit from it.
xpected on May 20th, 2020, the next bitcoin “halving” will happen. This large yet rarely covered event can change the value of bitcoin permanently. Bitcoin halving can positively impact your crypto portfolio and there are many options for investors and potential investors to benefit from it.
Before explaining bitcoin halving, we must discuss the process of mining. We have an article detailing bitcoin mining here, but we will quickly run through the details. Bitcoin mining is a process in which a group of transactions known as a “block” are solved by miners and added to the bitcoin blockchain.
Though along time ago this was feasible for anyone to do, today it is an energy-intensive process that is not recommended for the average crypto-enthusiast. However, many still choose to mine, because the reward of bitcoins may still be worth the risk and resource costs.
Every 10 minutes, transactions would be solved, and the miners would be rewarded with 50 BTC, which today is valued at roughly $488,535 US Dollars. BTC halving is essentially that reward being cut in half. In May, the next bitcoin halving will divide the current 12.5 BTC ($122,438 USD) reward to 6.25 BTC ($61,219 USD).
To curb inflation the hard cap on all bitcoins is set to 21 million. BTC halving is a feature programmed into bitcoin and occurs every 210,000 blocks. Once past the post of 210k blocks, the reward is cut in half. The process and its timeline have already been predetermined and most likely will continue until the predicted last bitcoin is mined in 2140.
So why does this occur? Well, a simple reason may be plain old supply and demand. Increase the scarcity of BTC and increase the value. However, this benefit does not occur immediately and usually takes a while to be realized by the market.
Another reason this may occur may be to control the mining market. At the current price at the time of writing (Sunday February 17th 2020) roughly 4,380 blocks are mined monthly and if we look at the numbers 4,380 rewarded at 12.5 BTC would equal 54,750 BTC mined monthly at a value of 535.6 million USD, or 6.4 billion USD yearly.
Halving, which cuts the reward in half, also ensures that some are dissuaded from future mining. Every time halving occurs and as more coins are mined, the required computing technology needed to solve the next block gets more and more powerful and many simply cannot afford the energy and hardware costs associated with future mining.
Therefore, the costs outweigh the potential gain. Some miners will outright give up as they are not successful in mining or they will refuse to sell BTC generated at a price below $10,000.
Not all the possible effects, however, are positive. If we reach a point where very few can afford to mine cryptocurrency it could affect the overall decentralization of bitcoin and security could be a risk.
It is unknown as well just how a smaller market for miners could Influence the speed of the bitcoin blockchain.
To some, there are a few trends that can be observed from the bitcoin halving history. However, it is very early to declare anything a trend as halving has only happened twice in November 2012 and July 2016 respectively.
The bitcoin price has risen after each halving, but the situations regarding the bitcoin price have been drastically different. In Nov 2012, bitcoin was valued under $12 USD per BTC and many had little or no exposure to the cryptocurrency.
In July of 2016, the price was in the hundreds and BTC went on to rise to $20,000 USD per BTC before falling to 20 percent of its price.
With the above in mind, it is always a risk to use the bitcoin halving history as a model for future investment, but if many decide to do so it would coincidentally cause a rise in demand for bitcoin as investors seek possible gains and influence the price in an upward direction, however, this same sharp increase in demand can lead to a giant fall, with the example of BTCs 80% price decrease in 2017.
It is important to take-away that halving is directly a supply-side change and it happens predictably every four years. Despite the historical lessons we can take from 2012 and 2016, two years is hardly a model for a trend and many changes in the span of four years.
Remember in 2012 very few outsides of the crypto-inner-circle really knew a thing about bitcoin. Today nations are championing their own cryptocurrencies, major companies such as Facebook are attempting to make their own cryptocurrencies, and the bitcoin price is over fifteen times higher than it was during the last halving.
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