What is Bitcoin Halving and When it happens?

What is Bitcoin Halving and When it happens?

What is Bitcoin halving?

First thing first, Let’s look at some basic concepts related to mining bitcoin. After creating a new transaction, the information will be sent to all other nodes in the bitcoin network, along with those that make a contribution to the entire mining process. This transaction information is stored locally, and the miner gets rewarded for publishing this transaction block on the blockchain. To do this, miners must contribute their computing power to solve challenges that require high processing power. Prizes obtained by a miner for successfully issuing a transaction depending on the reward block. At present, the reward block is set at 12.5 BTC.

bitcoin halving - public blockchain
bitcoin halving and the market price

What is Bitcoin halving?

Since Bitcoin is on the market, Bitcoin has followed the code written many years ago – almost a decade ago. One reason why bitcoin is so valuable is the limited supply of bitcoin, which is 21 million. Therefore, it works in the same way as resources such as gold. Unlike the fiat currency, which is printed continuously by the state and can experience deflation.

Employees work on bitcoin mining computers at a factory in Florence
Employees work on bitcoin mining computers at a factory in Florence

Before heading to the formal definition of halving, let’s consider two factors that affect the block rewards:

–  The first factor is the Miner competition. To make things somewhat competitive, the bitcoin code is written in such a way as to make miners compete with each other to get rewards. Therefore, the greater the number of miners on the network, the more difficult for single miners to win. With increasing competition, miners tend to use greater processing power (computing power), leaving aside the possibility of people making profits only through an ordinary computer. Currently, mining bitcoin requires a level of processing power from a data center.

–  What is the second factor? Well, this is where the definition of halving is located. According to the code behind the bitcoin operation, rewards from mining blocks are cut in half after every 210,000 blocks are mined.
Halving events don’t just come and go to be recorded. In fact, it has an important role in determining crypto rise or fall. However, for many people, especially those who run older class equipment to do mining, bitcoin halving events are certainly not happy.

Do we need Bitcoin Halving?

Halving events pretty much simulate assets such as diamonds and gold that don’t function like fiat currencies. However, the total amount of gold and diamonds in the world is almost certain. Therefore, the value depends on how much this commodity is available in the world

Bitcoin Reward Halving Can Increase Bankroll Value
Bitcoin Reward Halving Can Increase Bankroll Value

A halving event also maintains cryptocurrency value, because after all, Bitcoin supply is limited. At the same time, halving events usually mean that many miners with old equipment may not make big profits anymore. This will make them turn off their equipment. According to Vinny Lingham, the halving event will kill around 25% of mining rigs. If the majority of miners turn off their equipment, the Bitcoin price is likely to drop. However, this seems unlikely.

This is mainly because many miners with old equipment are no longer eligible to run after a halving event and will be permanently offline and leave the network. When they leave the network, the overall computing power currently on the network will decrease. According to many crypto experts, a sudden decline in the bitcoin hashrate network means that transaction confirmation will take longer, which might reduce the price of bitcoin for a short period of time. As a result, maybe even more miners will turn off their mining equipment because they will not get enough profit, and this cycle can continue until the destruction of bitcoin.
The last halving event ended in a 20% decrease in hashrate!

Next bitcoin halving

The estimated date for the next Bitcoin halving event is May 31, 2020. Currently, the block reward for Bitcoin today is set at 12.5, with each block containing 2,500 transactions in general. After the next halving event, this block reward will be divided into 6.25 Bitcoin per block.

As experienced before, Bitcoin prices are expected to rise at the next halving event. Because halving events mean less amount of Bitcoin is left for mining, miners will fight and compete with each other as before. With transactions that take longer, if supply is getting smaller in the market while demand remains constant, the price of Bitcoin will definitely rise high in the long run. This will only be possible provided the majority of miners do not turn off their equipment because of the increase in mining costs (very unlikely because miners usually invest long-term).

Apart from crypto price increases, one can also expect the mining popularity of bitcoin to drop significantly. This is because there will be a small number of people who can have a set up of industrial-scale mining equipment so that they can produce real profits without losing high electricity costs. Just having an industrial grade mining can be worth several million dollars, less large electricity costs.

Although halving is an event that is not too welcomed in the mining community, mining bitcoin community (including Jihan Wu and Valery Vavilov) are quite optimistic that until now. There will not be significant negative changes other than a drop in hashrate at the next halving event.
One interesting fact that needed to written down is that after the halving event, even though the bitcoin reward for each block will be cut in half, a miner can still receive a greater value in terms of USD compared to last year. This is because the price of bitcoin is almost four times higher than last year.

All the Bitcoin halving events

28 November 2012 (The first Bitcoin halving)

  • Price before: 12$
  • Price after: No effect after the halving
  • Reward: Cut from 50 BTC into 25 BTC

Market Impact: This is the first halving event in the history of Bitcoin. However, the Bitcoin market at that time used to have a completely different environment. Because Bitcoin is also not very popular, halving events have an overall impact that is ignored by the market and the mining community. However, the reward is cut from 50 BTC to 25 BTC which is a very big difference. The price of Bitcoin did not really rise until mid-2013 after the first halving event. Therefore, price increases do not occur immediately and it takes several months. This shows that the halving event in 2012 was not the main cause of the slight increase in prices in 2013.

9 July 2016 (The second Bitcoin Halving)

  • Price before: 650$
  • Price after:  675$
  • Reward: Cut from 25 BTC into 12.5 BTC

Market impact: This is the second Bitcoin halving event. Surprisingly enough, there is no substantial increase in the price of Bitcoin. Before the halving event, the price was still around $ 650. After the halving event on July 9, 2016, prices increased slightly to $ 675. While it was predicted that the hashrate would drop by 5 to 10 percent, there were almost no real changes. In fact, the drop hashrate even becomes less than 1%. However, it is interesting to note that there is some price volatility seen before halving. The Bitcoin exchange rate has decreased by more than $ 30 so the price drops to $ 630 from $ 660. After halving, the price has stabilized at $ 650.

Conclusion

Halving is an event where the reward for mining one block is halved, based on the original reward. So, in a case, the initial reward is set at 50 BTC, it will be 25 BTC after the halving event. At present, the block reward for BTC is set at 12.5 which will be 6.25 after the next halving event that is expected in May 2020.

Halving events can filter out most miners who use older mining equipment because they won’t be able to generate big profits. This is because greater computing power will be needed because of the increasing difficulty of mining bitcoin. This is quite disappointing for many people in the mining community. However, most miners see it as something that is absolutely necessary to maintain the value of BTC while comparing it with limited commodities such as Gold and Diamonds.

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