The Bitcoin Halving: Everything You Need to Know!
The crypto industry is very dynamic and exciting developments happen in this industry almost every day. This time around, the community is nervously looking forward to one of the most monumental and probably one of the most anticipated events in the industry, the Bitcoin halving.
The quadrennial event is expected to occur on 11th May, although the exact half-life of Bitcoin is subject to several factors.
So what is Bitcoin halving? Why is it so important? What happened before? And why do many people feel uncomfortable about it?
Bitcoin blockchain: the concept and how it works
To understand Bitcoin halving, we must first look at the underlying technology and how the Bitcoin blockchain works.
The concept of Bitcoin as a peer-to-peer electronic money system was introduced in a whitepaper by mysterious inventor, Satoshi Nakamoto in 2008. Initially intended as a solution to the dual spending in digital currencies at the time, Nakamoto proposed a decentralized approach of transactions, which led to the creation of the blockchain.
While blockchain has evolved into a separate concept, Bitcoin was the first to adopt it. That’s probably why it is confusing for some people as they still think blockchain is Bitcoin.
As a decentralized network, this means that the Bitcoin blockchain does not have an authoritative party that controls what happens within the network. Instead, it relies on many participants to determine what should or should not be done with the blockchain, which in the case of Bitcoin may or may not add a transaction to the network as a new block.
These contestants, also known as nodes, are computers around the world that store the Bitcoin blockchain, including the entire transaction history. The number of Bitcoin nodes is said to have reached nearly 100,000 nodes as of May 2019. For these nodes to come up with unanimous decisions is a set of rules known as consensus algorithms, Is required. There are several well-known consensus algorithms in crypto, but the one Bitcoin uses is the Proof of work (PoW).
You can learn about the main differences between Proof of Work and another popular consensus algorithm, the Proof of Stake (PoS) in our recent stake out article.
In PoW it is called the process of generating a new block mining. In short, miners compete with each other to solve complex cryptographic problems as quickly as possible. The winner gets block reward – 12.5 Bitcoin at the moment – for every new block successfully created.
What is Bitcoin Halving?
When Nakamoto invented Bitcoin, he already stated that there will be alone 21 million Bitcoins that will ever exist. He also coded that for everyone in the blockchain 210,000 blocks or about every four years, Bitcoin performs a “halving”.
To be precise, Bitcoin halving is the process by which the Bitcoin protocol cuts the block reward in half for successful miners.
In the course of Bitcoin’s existence, the halving has happened twice so far. Back at 28th November 2012, the halving cut the block reward from 50 BTC to 25 BTC and then 9th July 2016, bringing the reward to the current value of 12.5 BTC. The 3rd When halving 2020, which will happen in a few days, the block reward will be reduced to 6.25 BTC.
While no one can really say what went into the mysterious inventor to choose such a mechanism, Nakamoto can be seen pondering various probabilities of the future value of his invention in one of his first public emails, shortly after the publication of the Bitcoin whitepaper. He pointed out inflation, where the purchasing power of a currency falls and deflation, where the purchasing power of currencies increases.
Experts believe that the predetermined number of Bitcoin is one deflationary assets in nature, because it makes Bitcoin scarce. In addition, the halving mechanism reduces the number of new Bitcoins that are created and put into circulation, which would reduce the total supply of the cryptocurrency.
Assuming demand stays the same based on the economic principle of supply and demand, when supply is “low” and demand is “high”, the value of an asset would increase. So, in theory, Bitcoin’s value would increase significantly after the halving has occurred.
Hence, miners are expected to feel stimulated, despite the reduced block reward.
But is that really the case with Bitcoin? Or probably the most important question that everyone desperately wants the answer is, will the upcoming Bitcoin halving significantly increase the price of Bitcoin?
Several massive increases in Bitcoin’s price history are said to correlate with Bitcoin halving. Within a year of the first halving (2012), Bitcoin rose from $ 10 to over $ 1,000. Meanwhile, the second halving caused the Bitcoin price to rise from $ 650 to a remarkable $ 20,000 between 2016 and 2017, which is Bitcoin’s highest value to date. , but still higher than the previous bottom.
However, not everyone believes that history will repeat itself in crypto. After all, it’s Bitcoin; anything can happen.
While nothing can be done during or after the Bitcoin halving countdown, in addition to waiting, it’s always a good idea to find a reliable platform with a proven track record to trade Bitcoin. Bitfinex has been operating since 2012, making us one of the longest-running exchanges in the crypto exchange industry. We have an impeccable track record of providing reliable services to our users and the crypto community at large. In addition, we have proven our resilience through the good and bad times of crypto. Even during the recent market crash, when Bitcoin prices plunged to 12 within hoursth In March 2020, Bitfinex was the one to represent most of the highest exchange’s trading volume as surveyed by CryptoCompare suggests.