Guide On Bitcoin Halving
Bitcoin has become an international phenomenon as a well-established cryptocurrency. This asset has gained critical acclaim among financial enthusiasts and experts while being noted as a game-changer when it comes to investment opportunities and general currencies. After the rising boom in 2016-17, Bitcoin has developed into an all-encompassing topic of its own.
This guide will analyze one of the more unique aspects of bitcoins in the form of its "halving." The term often comes up in cryptocurrency discussions and is generally positioned as an influential variable with regards to Bitcoin price.
Let's take a look at what the Bitcoin halving is, how it works, and what the impact will be on the overall price.
What is Bitcoin Halving?
The bitcoin halving cannot be viewed in a vacuum and has to be acknowledged as an extension of the cryptocurrency's mining process. In general, miners are rewarded for mining with new Bitcoins and this rewards come in at set periods. The idea is to reward miners for using their technological power to keep the network running without having a centralized figure controlling all Bitcoins. This is what sets BTC apart from other currencies in the first place.
Keeping this in mind, the Bitcoins cannot keep entering the market at a similar rate and there's a control mechanism in place to slow things down. This mechanism is called the Bitcoin halving.
When bitcoin was set up, Satoshi Nakamoto believed it was important to create steadfast rules, which included having a finite supply of bitcoins (21 million) and ensuring the mining reward was limited as time went on. The limitations would include decreasing the reward by 50% every 210,000 blocks that were mined.
This would allow the mining process to continue for years to come and it would ensure the finite supply wouldn't enter the market quickly.
Timing of the Bitcoin Halving
The Bitcoin halving is supposed to occur approximately every four years but this number can vary. The calculation is dependent on the number of blocks being mined per hour. In general, around 6 blocks are mined per 60 minutes, which allows experts to use this number in a bid to determine when the halving will take place. Since Satoshi Nakamoto said the halving would occur every 210,000 blocks, they can divide that number by 6 to understand how many hours are going to pass before the mining difficulty is increased.
When the time comes around, miners will immediately notice a 50% reduction in what they're able to generate. it's a straightforward calculation as a person that was able to mine 10 BTC in the past would only receive 5 BTC for the same amount of energy. This calculation continues for as long as it takes until the 21 million Bitcoins have been mined.
Let's assume the halving occurs and now the restrictions are up, what happens after all 21 million bitcoins are in circulation? It's important to understand that many Bitcoins have been lost and are never going to be retrieved. When BTC wasn't valued as highly, several coins were lost as computers were thrown away, passwords went missing, and others forget they even had any to begin with! This is what makes it a challenging process to know how many are in the possession of those aware of what they own. Since this is a finite supply, most experts believe a significant amount of coins are never going to enter the market again. This means 21 million will never be a reality except on paper, which makes the halving an increasingly important occurrence.
Reasoning Behind the Bitcoin Halving
So, what is the reason for the halving? Is it all about simply slowing things down and ensuring they're released in a calculated fashion?
The purpose of doing this is to create an appropriate balance between supply and demand. Without doing this, the coins lose their value and can't grow as they're designed to. If they remained easy to mine, the coins would be out faster than desired and this would take away from the supply side of the equation.
Inflation is often used as a factor when it comes to discussing the halving. In the topic of supply and demand, it's also important to note the impact extra currency has on the financial market. Just take a look at the traditional dollar as the inflation rate continues to devalue what $1 is worth. If too much is printed, this continues to devalue the currency's worth at a dramatic pace. This is something Satoshi Nakamoto wanted to ensure wasn't possible and that's where the restrictions came into action. it was the only way to make sure the finite supply had a purpose and was kept under control while allowing miners to mine.
Remember, Bitcoin isn't the same as the traditional dollar. It's supposed to be a better system. If it used the same principles as the traditional dollar, it wouldn't have the same impact and likely wouldn't be a topic of discussion right now. However, since it was designed as a limited currency, it is often associated with gold as a relevant comparison. The idea has to do with there being a finite amount of gold on planet Earth and a finite amount of BTC.
Satoshi Nakamoto realized the limited supply was important in making sure the currency retained its value and only grew over the long-term. This meant the currency wouldn't depreciate as soon as a person possessed it. Instead, it would maintain its value just like gold has while providing a way for it to grow. While this is not a guarantee, it's still something that was built into the code for a reason.
When is the next Bitcoin Halving?
Based on the calculations that have been done by experts, it's supposed to occur sometime around June 2020. Please note, this is an approximate figure and the exact date can be off by a little. However, the estimate is made after calculating the current block generation time and expanding it to June 2020.
Some experts state these numbers are slightly off as the block generation time isn't as high as it's claimed to be. Instead, they believe it is 40 seconds faster, which will decrease how long it takes for the halving to occur.
The Influence of a Bitcoin Halving
The main question people have is a simple one. What is the underlying influence of a BTC halving? What is the reason it is proclaimed to be such an important event among cryptocurrency and financial experts?
Well, sometimes it's as simple as no one knows.
The halving has a direct effect, which involves slowing down the generation of Bitcoin. However, its impact on the actual market and price isn't as clear-cut as you would assume. Instead, there are several varying opinions on what is valid and what is not with regards to the BTC halving's influence.
For example, if you were to go back in history to the 2016 bitcoin halving, it didn't have an immediate impact on the coin's value. It remained similar and only went up a few percentage points after the block generation rate was cut. This means history shows the change isn't an immediate one and other factors likely play a bigger role in the grand scheme of things.
Even those willing to assess the 2012 bitcoin halving are going to notice a lack of price appreciation. The price didn't move significantly and it took other variables to cause a sharp rise as time went on. This indicates the Bitcoin halving isn't a dramatic financial event despite it's importance to the network's supply and demand.
In the end, this event will have a minimal impact on the short-term but may push the coin to greater heights in the coming years. This is a long-term asset and it's one that is going to continue to have price fluctuations whether or not the halving is happening. All history has suggested is the price tends to stay at a certain point and only goes up once the halving occurs. However, this is restricted to a couple of examples and isn't a set rule nor should it be taken as one.
An interesting take that has been making the rounds has to do with emotional or reactive investing. This means as soon as the BTC halving comes around, there's an increased interest to get ahead of the market for a quick buck. As a result, investors start to pump up the value by buying more in a bid to get the value to rise rapidly. This allows them to sell-off as soon as the hype dies down. While this is a potential tactic that does have merit, it's something that hasn't been seen in the past and may not work out this time around. Avid traders will not fall for these manipulations and the asset will continue to react based on what the market dictates.
In most scenarios, the only impact that's going to come out of the Bitcoin halving has to do with mining. The average miner is going to require more power to generate the same amount of bitcoins and this is a guaranteed effect. Once all of the coins are circulating, miners will be rewarded through transaction fees (paid after each BTC transaction between network users).
The Bitcoin halving is going to be a well-recorded event as it was back in 2012 and 2016. It will continue to achieve similar importance heading into 2024, but the goal should remain to understand what the asset class has to offer as a whole. Bitcoins continue to spread across the planet and have developed awareness among the masses in various nations. This is a cryptocurrency that continues to hold sway when it comes to altcoins and generating value for the market as a whole. Due to this reason, the bitcoin halving is always going to have a major role to play in shaping market sentiment one way or the other.
This may mean slight variations in price, however, the impact shouldn't be expected to create massive jumps in value.
As June 2020 nears, the bitcoin halving will have a direct impact on what investors do. This will have a greater impact on the price and whether it goes up or stays the same.
Investors are highly recommended to keep an eye on all relevant variables when it comes to bitcoin's value. This is the only way to make sure the right decisions are made when it comes to buying and/or selling.
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