What is Halving and how can it impact Bitcoin and Cryptocurrencies
When Satoshi Nakamoto introduced the Bitcoin (BTC) protocol in 2009, he defined that the limit amount of Bitcoins that will be produced is a maximum of 21 million units.
Halving, which in free translation would be: Reward reduction – is a very important period in the existence of Bitcoin, which usually occurs every four years, where the amount of bitcoins per block is reduced by half.
Before the first Halving, which took place in 2012, a block with 50 Bitcoins was distributed every 10 minutes, after Halving the reward per block was reduced by half, and then from 50 Bitcoins per block, it was reduced to 25 bitcoins.
The second halving took place in June 2016. Thus, the 25 Bitcoins per block reduced to 12.5 Bitcoins per block mined every ten minutes. Bitcoin's third halving is expected to take place in May 2020. Check the table below:
In order not to leave this list exhaustive and very long, in the table are only recent events and the next three halvings, but Bitcoin halving will occur every 210,000 blocks until approximately 2140, when all 21 million units will be mined.
What happens to miners when the bitcoin reward is cut in half?
When the block’s reward is cut in half, some users may calculate that their mining activities will no longer be profitable due to costs such as electricity and hardware. Some users can completely stop mining if the price of bitcoin does not rise to compensate, reducing the amount of processing power on the network. Whatever happens, the speed at which the blocks are mined should not be affected, as the software automatically adjusts the difficulty of checking transactions to maintain a constant rate.
And when all 21 million bitcoins are mined? What will happen to bitcoin when new bitcoins are no longer issued to reward miners? Are all the miners going to shut down their machines and is the network going to end?
No, when the maximum supply of 21 million bitcoins occurs, miners will no longer receive new bitcoins for block verification. However, they will continue to receive transaction fees – contributed by those making transactions – as an incentive to verify transactions, which is already the case today.
But what happened to Bitcoin’s value in the last halving?
Bitcoin rewards last fell on July 9, 2016, Bitcoin’s price rose from $ 576 on June 9, 2016 (a month before half) to $ 650 at the time of the event. Despite significant volatility, prices continued to rise over the next year, reaching $ 2526 on July 9, 2017.
A similar pattern emerged around the first halving on November 28, 2012, when the bitcoin block&’s reward dropped from 50 to 25 new bitcoins. Prices rose from $ 11 in the month before half to $ 12 on the day of the event, continuing to rise over the next year, reaching $ 1038 on November 28, 2013.
How can Halving affect the price of BTC?
With halving decreasing the rewards for miners, there is an increasing cost of mining for each bitcoin unit, causing each bitcoin to also tend to increase in value over time.
It is not yet clear how the next halving will affect the price of bitcoin. Many analysts believe that the price will follow a pattern similar to the two previous reductions, increasing in advance due to increased news coverage and after the event as well, as the supply of new currencies is limited.
However, any price increase will depend on how the demand for bitcoins will form over the course of halving. Demand may not increase or may even remain static, as the market has matured significantly since 2016 and there are now many more cryptocurrencies competing for users in the market.
But if we follow the history of the last two halvings, after the bitcoin price increase, soon after came the altseasons, where the vast majority of altcoins had a very significant and even greater appreciation than that of Bitcoin in some cases.
Today if we follow on the Bitcoin Block Half website that details Halving's situation well (https://www.bitcoinblockhalf.com). We realize that there are 99 days until the next reward reduction and that 86.65% of the 21 million Bitcoins have already been mined, only 2,803,363 bitcoins left.
Conclusion: Halving is an important event that occurs every four years, reducing the supply of btcs in the market and the reward of miners. Halving is an important moment for the market because as we know that it is a scarce asset, it tends to increase the unit price over the next few years.