May 29, 2023
6 min read
Halving is the process of dividing the generated reward for mining the block twice. It is essential for the operation of the network because it is necessary to maintain the total number of bitcoins, which will not exceed 21 million.
The day when the number of miners awarded per block, which is halved, is called “Carving”.
Halving bitcoin is scheduled at the height of the block, and not the date.
Halving occurs every 210,000 blocks and reduces the reward by 50% each time exponentially. The half-year 2020 will take place at block 630,000.
The half-life of 2024 will occur in block 840,000.
The initial award for the block in 2009 was 50 bitcoins, the current award of 12.5 coins, and the next halving in May 2020, the reward will be 6.25 coins.
It is expected that this process will be completed in 2140 when all bitcoins will be mined.
Bitcoin is designed to simulate a commodity like gold that has a limited supply. For every gram of gold mined, the remaining gold becomes harder to mine. As a result of the limited supply, the precious metal has managed to retain its value for many years as an international repository of value and medium of exchange. The same can also happen to Bitcoin.
Block rewards are the main incentivization for bitcoin mining which is considered to be the main power of the network. Bitcoin blocks are essential parts of the bitcoin blockchain where all transactions are recorded.
Each block is associated with a mathematical problem, and miners are constantly using equipment to record transactions and solve these mathematical problems. The more miners are fighting for the reward, the more difficult it is to solve this problem.
If coins are created too quickly, or the number of bitcoins that can be created is unlimited then eventually there will be so many bitcoins in circulation that they will have only a small value.
Satoshi Nakamoto’s idea behind bitcoin is to create an alternative to banking systems and Fiat money. He wanted to create a self-sustaining system that looked like gold mining. So we have a condition due to which products will become more complex and the rewards will slowly decrease.
This is done to ensure that bitcoin is not becoming cheaper and to stimulate miners to support the ecosystem.
The first halving took place on 28 November 2012. On this day, the price increased by 1.7% – a slight movement. However, the previous and subsequent months showed continued growth and led to the famous rally in early 2013 (from $ 13 to $ 260 for 4 months).
Most recently, the bitcoin Litecoin clone passed its first halving on August 25, 2015. Two months before, the wild speculative rally raised the price from $ 2 to more than $ 8, and then the LTC fell to $ 3.
For the upcoming bitcoin halving, there will surely happen the same short-term and long-term speculative rally.
However, it will be interesting to observe on a larger time scale to see if BTC will continue its uptrend.
However, one thing is certain: the market may not immediately feel the reduction in supply twice. Because the supply reduction will be estimated at the exchange rate due to market expectations. So do not expect a big price movement right on the day of Halving (but again, if the media does not spread the news that Bitcoin is now in short supply).
Reducing the reward by half affects the number of miners who receive bitcoins for mining, and has historically had a positive impact on the price of BTC in the long run. Let’s look at how this process will affect the price of BTC?
Likewise to any type of asset, the price of Bitcoin is highly dependent on supply and demand according to an impact on the latter.
That is why everything depends on how the demand will develop in the coming months and years.
How much? When? This remains 100% unpredictable.
However, we can analyze how the BTC rate behaved at the previous two halvings!
Before the event: the reward was 50 BTC per block
After: 25 BTC
Price on the day of the event: $12.35
Price 5 months later: $ 127.00
2016 was the second year in history.
Before the event: 25 BTC reward per block
After: 12.5 BTC
Price on the day of the event: $ 650.63
Price 5 months later: $ 758.81
Some argue that the event of “dividing the reward in half” is well known to the community and therefore will not surprise anyone and will not lead to a serious change in the price of Bitcoin.
Many argue that due to a lack of “bitcoin supply” the price will rise as demand grows.
Is growth possible? Currently, 1800 bitcoins are mined every day. The vast majority is sold directly in manners to cover, for example, the costs incurred for electricity, rent, repair of equipment, etc. costs. Will the reward be cut in half? This can have a positive effect on the price. Because then the number of sales (offers in the market) BTC will decrease.
At the same time, no one seems to think that halving the price of Bitcoin would be able to reduce it in any case.
After the two previous halvings, bitcoin rallies took place about a year later. After the first halving in 2012, bitcoin reached a record high of $1000 by November 2013. After halving also occurred in 2016, bitcoin soared again and reached its record high of $20 089 on December 18, 2017, after which there was a decline in its price. However, since February 2019, bitcoin has started to grow slowly, as well as the number of its transactions.
Bitcoin has come a long way since 2009, when Finnish developer Marty Malmi, who worked on bitcoins, sold 5050 coins for only $5.02 – that is, then bitcoin cost only $0.0009, even less than a tenth of a cent.
Finally, it should be noted that an increase in the price can only make sense through supply and demand. The limitation of stocks of bitcoin to 21 million coins making them rarer and more valuable. Such a deficit, coupled with increasing public awareness of bitcoins and cryptocurrencies in recent years, means that demand and price are likely to inevitably arise.
So, if you want to buy bitcoins, now is the time to do so, as their price will slowly rise before halving 2020.
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