Because bitcoin is a deflationary currency, Satoshi Nakamoto (or whoever invented it) incorporated a Bitcoin halving into the Bitcoin protocol to ensure that the currency remains usable as a store of value. In an occurrence known as “Bitcoin halving,” the block rewards for Bitcoin miners are halved every four years, resulting in a 50% drop in the number of new bitcoins accessible.
To sustain its value, a new currency must have a restricted supply and be difficult to generate. As a result, according to the original Bitcoin whitepaper, Satoshi Nakamoto–whose identity is still unknown–decided to halve Bitcoin’s block reward every four years. Nakamoto vanished a year after publishing the Bitcoin network code.
It may be beneficial to have a basic understanding of how Bitcoins are mined at the outset. There is no need for a central authority or coordination, and value can be transferred from one person to another to keep everything working well. Many people were drawn to Bitcoin’s technology because of this capability.
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But, with this architecture, who will be able to do transactions? Miners are used in this situation. A “miner” is a computer that works on behalf of the Bitcoin network to process transactions. They confirm that transactions are valid to keep the network safe. Participants in the mining process are rewarded with the creation of new bitcoins.
Bitcoin transactions are grouped into “blocks.” A ” blockchain ” is produced when each block is linked to the one before it, and a “blockchain” is produced. As miners compete to “find” and reward the next block, those who put in the most effort have the highest chance of winning the lottery-style distribution of extra bitcoins.
In 2020, it will pay 6.25 Bitcoins to find the next block. This will be the case until the next halving in 2024. Bitcoin miners are paid a small fee, but block rewards are significantly more lucrative, and block rewards are the primary reason people mine.
Bitcoin Halving: When Does It Happen?
The halving of Bitcoin happens every four years or so. The block reward was reduced from 50 BTC to 25 BTC for each block at the initial halving in 2012.
Following the global financial crisis of 2008, Bitcoin was founded. The genesis block, the first block issued in the Bitcoin network, contained the statement “Chancellor on the Verge of a Second Bailout for Banks.” The London Times published a headline in 2008 referring to financial institutions’ “too big to fail” bailouts.
According to some evidence, Satoshi Nakamoto may have been working on an alternative to the centralised financial system. One of the most important components of the protocol aimed to achieve this goal was bitcoin halving.
Because of the constant decline in new money supply, Bitcoin will always be a deflationary currency rather than an inflationary one. Many people, including Satoshi Nakamoto, feel that central bank participation is to blame for many of today’s financial problems, including growing wealth disparity and the frequency of financial crises.
These individuals believe that the ability of central banks to create unlimited amounts of fiat currency out of thin air is at the root of the problem. Deflationary and decentralised money, such as bitcoin, is an antidote to the present monetary system.
Is it a Good or Bad Idea?
Cryptocurrency enthusiasts view the halving of the Bitcoin supply as a positive move. One of the reasons Bitcoin’s supply has been halved is said to be one of the reasons the money has grown so popular and revolutionary. There will only ever be 21 million bitcoins created, and they can only be mined with energy and computing power. Deflationary money was created for the first time.
When compared to national fiat currencies, which can be created out of thin air, Bitcoin is rare money.
Some argue that Bitcoin is the “hardest” currency ever created because it is tough to produce and has a limited supply. In this way, it’s similar to gold. Gold is mined, just like other precious metals, and there is a finite supply. For the same reason, Bitcoin has been dubbed “digital gold.”
Is the Bitcoin Price Going to Decline or Climb As a Result of the Halving?
To get an idea of how this question might be answered, look at previous halvings. The price of Bitcoin has typically risen significantly in the 18 months after a half. Following a price halving in 2012, BTC soared to $1,000 in November 2013. The price of Bitcoin was less than $50 before halving in April of that year.
The second halving was finished in 2016. Bitcoin soared from less than $1,000 in January 2017 to more than $20,000 in December 2017.
Bitcoin’s value tends to rise after halving at some point. Drawdowns of up to 90% are possible when things go wrong. After a time of stasis, it begins to grow again before the next halving, continuing the process. Although this is a simplified picture of events, it gives a general notion of how bitcoin price halving has affected prices in the past. However, the past does not necessarily foreshadow future events. In addition, the market is influenced by various factors, such as geopolitical events and macroeconomic developments. It’s difficult to say whether the price increase after the split was attributable to higher financial market correlations.
The Bottom Line
Bitcoin’s value has risen in the past after it was halved. The law of supply and demand dictates this pattern of behaviour. If demand remains stable or grows, supply reduction may result in a fluctuating price in the crypto market.
Because of this underlying economic benefit, some people believe Bitcoin is a unique store of wealth. Apart from gold, bitcoin, dubbed digital gold by some, is the only other currency having these characteristics.
