What Is Bitcoin’s Halving And How Will It Affect The Digital Currency
If you are a cryptocurrency enthusiast, you have probably heard about Bitcoin’s halving event several times in the past few weeks or months. The event will happen in May in around 5 days from this post. This event is basically coded inside Bitcoin and happens approximately every 4 years.
If we want to understand what the halving actually is, we first need to understand how the bitcoin network works. The idea behind Bitcoin and other cryptocurrencies is decentralization, there is no need for an authoritarian party to control everything.
Every single participant in the Bitcoin’s blockchain has a record of all transactions. You can check any transaction from any address whenever you want. If someone tries to send more Bitcoin than he owns, the transaction will simply not be completed as everyone else knows how much Bitcoin anyone owns at any time.
Bitcoin Mining Explained
Bitcoin mining is probably the most important concept to know in order to understand what Bitcoin halving really is. Bitcoin works because of an underlying system or protocol called ‘Proof-of-Work’ (PoW). This consensus mechanism is what enables Bitcoin to function and the Blockchain to become immutable.
This concept was actually invented long before Bitcoin was created by Cynthia Dwork and Moni Naor back in 1993. The idea behind PoW is that it is a piece of data easy to create but extremely difficult for someone to have access to it without the required key or password.
Trying to ‘break into’ Bitcoin’s blockchain is practically impossible, miners, which are basically people, calculate extremely complex mathematical problems in order to create ‘blocks’. Each Bitcoin block contains the hash of the preceding block which basically creates what’s known as the Blockchain.
Now, you might be asking yourself, why would anyone want to calculate difficult problems to create blocks? Well, because they are rewarded for it with Bitcoin. The current block reward is 12.5 Bitcoins although it started at 50. In less than 6 days, the reward will decrease again to 6.25 coins.
This means that miners are getting fewer rewards until it eventually reaches zero by the year 2140. In theory, this adds a lot of value to Bitcoin over time as the issuance of coins is slower and slower and limited.
How Will Halving Affect Bitcoin’s Price
We believe the upcoming halving event has already affected Bitcoin for the past few weeks and months. Bitcoin has been in a strong uptrend since the crash on March 12 and it is currently trading above $9,000.
If we look at history, the past 2 halving events had no significant impact right after they were completed. Weeks before the first halving, Bitcoin did see a significant price surge but traded sideways weeks later. The second halving, Bitcoin actually crashed a few weeks later.
The only thing in common of the past 2 halvings is the fact that Bitcoin did rally months later to new all-time highs. Of course, this doesn’t necessarily mean anything as Bitcoin was fundamentally different back in 2012 and 2016. There is a lot more interest in the digital asset now, big companies involved, and a lot more adoption.
Clearly, the halving is already pushing Bitcoin up, the only concern now is a possible crash right after the event. A classic case of ‘buy the rumor, sell the news’.
In the long-term, however, the halving events are bound to help Bitcoin. The idea is that over time, Bitcoins will always become scarcer. Unlike fiat currencies, Bitcoin and other cryptocurrencies are deflationary.
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