Around every four years, there’s an important bitcoin event known as ‘bitcoin halving’. During this event, the reward for mining new blocks is halved. As a result, miners receive 50% fewer bitcoins when they verify transactions. Bitcoin halving is scheduled once every 210,000 blocks which occurs after four years until the supply of 21 million bitcoins is generated by the network.
Want to know more about bitcoin halving and its impact on traders and the economics of bitcoin? Let’s look at the key aspects of this event and why it’s so important to bitcoin’s value.
All About Bitcoin Mining Rewards
A number of crypto enthusiasts, developers, and technology geeks mine bitcoin because it has value and can be used to buy things. In simple terms, mining is the process in which the network is secured and transactions are processed. With an objective to encourage people to mine bitcoin, every block contains a reward. When a miner successfully solves the block, the reward is released. Although the reward must be high enough to be a good incentive, it can’t be too large since that can lead to an oversupply, reducing the currency’s value.
What is Bitcoin Halving?
Satoshi Nakamoto, the creator of Bitcoin envisioned a self-sustaining system that would emulate gold mining in certain ways. He stated that the supply of Bitcoin will be limited to 21 million and that the number of Bitcoins generated per block (also known as block reward) will reduce by 50% after every 210,000 blocks. With time, mining would get tougher and the rewards would reduce to control the supply and boost the value. The bitcoin halving system was thus introduced.
Important Facts about Bitcoin Halving
· When Bitcoin was introduced, the reward was 50 Bitcoins every 10 minutes.
· Given 10 minutes per block, after every 210,000 blocks or four years, the reward is reduced by half.
· There have been two bitcoin halving events — one in 2012 reducing the block reward to 25 and another in 2016 reducing the reward to 12.5. The upcoming halving event will further reduce the reward to 6.25 BTC per block.
· Although the exact date of bitcoin halving is not yet confirmed, it is expected during the week of 18 May 2020.
· Following halving math, it is expected that the final number of Bitcoins will be 21 million by the year 2140 and mining will be needed as long as Bitcoin exists.
· On average, 144 blocks are mined every day which means that 1800 Bitcoins are mined per day.
Effects of Bitcoin Halving on the Network
Firstly, it extends the life of this reward system. If miners were still getting 50 bitcoins every 10 minutes, the 21 million benchmark would have been achieved quickly. In fact, mining would probably cease in just 8 years. By reducing the rate of rewards over a period of time, mining will yield block reward for longer.
Secondly, bitcoin halving will steadily increase the price of the cryptocurrency. Every year, the number of new bitcoin appearing on the network will gradually decrease, causing the prices to rise. The scarcity will increase proportionally as well.
Lastly, the event also increases the cost of mining every bitcoin. When the network difficulty increases and the rate of reward decreases, the actual mining cost for every single bitcoin goes up. As a result, it causes the trading price of bitcoin to also increase.
How Does Bitcoin Halving Affect the Price of BTC?
This block reward halving event tends to have long-term positive effects on the price of BTC. Wondering why this happens? Although experts have many theories, the most common one is supply and demand. When fewer bitcoins are being generated, there’s a scarcity that makes the bitcoins more valuable. However, it’s important to note that this doesn’t happen right away. After a halving, although a small number of miners may give up mining, most usually continue mining and holding on to their bitcoins. Although there are many variables involved in the prices of bitcoins, many are expecting that halving will be the catalyst to launch bitcoin past $20,000.
The Day the Mining Stops
Wondering what will happen when mining stops? Although there are 130 years from the time Bitcoin was introduced, this is a logical question. According to Nakamoto’s white paper, after the desired number of coins have entered circulation, the incentive can move completely to transaction fees and it can be inflation-free!
In conclusion, bitcoin halving is a means to control the amount of new bitcoin that enters the market every day. It prevents hyperinflation from occurring and keeps prices steadily moving upward over a period of time. If it wasn’t for bitcoin halving, the value of bitcoin may have just been fifty or a hundred dollars each, instead of the thousands of dollars every bitcoin is worth today!
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