Bitcoin Halving

The Bitcoin Halving: Everything You Need to Know

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A few weeks ago, bitcoin experienced its third halving. This was a significant development that could shift the balance of power over the network. Looking back at the past halvings, this event could have a significant impact on the price of the cryptocurrency, especially in the long term.

In this post, we discuss everything you need to know about the Bitcoin halving.

What Is Bitcoin Halving?

To help you understand what bitcoin halving means, let us have a quick recap of how bitcoin mining works. The bitcoin network is run by miners. These are network users who run special software on relatively powerful and specialized computers with an aim of solving complex mathematical problems.

Every time the problem is solved, a new “block” is created and verified by all miners on the network. Each block on the network contains the latest batch of transactions. Once a new block is successfully created and verified, the mathematical problem that led to its creation is replaced by another problem and the cycle begins afresh.

Now, to keep miners motivated, the system offers them an incentive for every block they mine.  The miner who solves the mathematical problem (creates a new block) is awarded bitcoins to compensate the electricity, time, and processing power spent to find the block. This is what is referred to as the block reward/bitcoin reward. Before bitcoin halving 2020, the reward per block was 12.5 BTC.

So, what is bitcoin halving?  In simple terms, this term refers to a process where the reward for mining a new block on the bitcoin network is reduced by 50%. This means that miners receive fewer coins for verifying transactions on the network.

How often is bitcoin halved? The network is designed such that halving happens once every 210,000 blocks. This is roughly once every four years. The process of halving bitcoin block reward will go on until the network has generated the maximum supply of 21 million bitcoins. 

Halving is a critical process for miners because it reduces the number of new bitcoins being generated by the network. This helps to control the amount of coins in supply hence driving up prices if the demand for the cryptocurrency remains strong.

While this has been the case in the months before and after the previous halvings, it is good to mention that circumstances surrounding each halving are different and the general demand for the cryptocurrency can fluctuate massively.  Therefore, there is no guarantee that prices will rise after the halving.

Bitcoin Halving Dates History: A Quick Overview of Past Halvings

The bitcoin halving history dates back to 2012 when the first halving took place. After that, the second halving took place in July 2016. Here is an overview of the two events and how each one of them affected the network.

The 2012 halving

This was the first-ever bitcoin halving that reduced the block reward from 50BTC to 25BTC. At that time, there were only a few exchanges that allowed bitcoin trading, and it was quite challenging to purchase the cryptocurrency.

However, there are a few things that happened after this halving that we need to take note of.  First, the average hashrate of the network fell from 27.6THash/s to 19.9THash/s in two weeks. But after the decline, the hashrate rose steadily to about 60THash/s five months later.

How did the first halving affect the coin’s price? Well, after the event the price of one bitcoin increased from $11 to $12 before skyrocketing to $1,038 one year later. That was an equivalent of 9,336.4% increase in twelve months.

The 2016 halving

Four years later, another bitcoin halving happened in July 2016, cutting the block reward from 25BTC to 12.5BTC. The bitcoin halving 2016 event was quite significant because it occurred at a time when the cryptocurrency was quite popular, and the network had already attracted a significant number of miners.

Following the halving, the average hashrate of the network plummeted from 1.56EHash/s to 1.4EHash/s before it improved and stabilized at 3.85EHash/s seven months later.

Pricewise, the cryptocurrency went through a significant price surge just before the halving. From June to July 2016, the price of one bitcoin rose steadily from $576 to $650 as buyers accumulated the coin in anticipation of the halving.

After the halving, the price picked up from $650/BTC rising to $2,526 in a year. This represented a 288.6% increase in 12 months!

According to cryptocurrency experts, the surge in price was realized because everyone was highly anticipating the halving and miners were holding more onto their coins. This drove up the demand for bitcoin yet its supply remained relatively low. 

In 2017, the price of bitcoin rose steadily  hitting the $5,000 mark in early October. In November , the price of one bitcoin  doubled to $10,000 before it peaked at nearly $20,000 in December.

The 2020 Bitcoin Halving

The 2020 bitcoin halving took place on May 11, 2020 at around 4:00 pm EST. The halving cut the block reward from 12.5BTC to 6.25BTC per block. This means that miners currently receive 6.25BTC for verifying a transaction successfully on the network.

However, there is something unique about this year’s halving that we cannot fail to mention. Although bitcoin price has improved by more than 20% since the start of 2020, this year’s halving may differ from the previous halvings due to the volatile and uncertain economic environment that it has happened in.

With the effect of coronavirus spreading across the world, the IMF predicted a 3% shrinking of global economic growth in its April forecast. Things might get worse if the pandemic is not managed soon.

How does this relate to bitcoin? Well, some cryptocurrency experts believe that this year’s halving may not necessarily boost the coin’s price since a lot of people had anticipated the halving and the current situation doesn’t make things any better.

But other experts argue that bitcoin’s scarcity may push its prices through the roof because it is much more stable than other fiat currencies that are vulnerable to devaluation, especially during times of economic crisis.

How Might this Halving Impact BTC’s Price?

It is not still clear how the 2020 halving will impact bitcoin’s price in the long run. However, a significant number of crypto experts believe that BTC prices will follow a similar pattern to the previous halvings i.e BTC prices may rise just before and after the halving due to increased news coverage and reduced supply of coins.

After that,  any price rise will largely depend on how demand for the cryptocurrency shapes up over the course of halving. There is no guarantee that the demand for bitcoin will increase or even remain static because the market has matured significantly since the last halving.  In fact, there are many more cryptocurrencies competing for users today compared to how things were four years ago.You can monitor live prices for bitcoin and other cryptocurrencies here.

What Will Happen When All 21 Million Bitcoins Have Been Mined?

The maximum amount of bitcoins that can be mined is 21 million. When the maximum supply of the coins on the network will be exhausted, users will no longer receive block rewards as incentives for verifying transactions on the network.

Instead, they will receive transaction fees that will be contributed by people making payments using the coin.  By this time, the transaction fees will be sufficient to incentivize miners to continue verifying transactions on the network. 

It is estimated that the last bitcoin will be mined sometime in 2140, but that depends on a wide range of factors such as mining difficulty and hashrate.

Summary

Halving is at the core of the bitcoin network. This process ensures that the cryptocurrency retains its deflationary quality as opposed to fiat currency that is inflationary. 

Although the 2020 halving is expected to follow the historical precedent set by the 2012 and 2016 halvings, it is still too early to establish the true impact of the event. For now, all you can do is sit back, relax, and monitor the trends closely.

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