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One of the most talked-about topics in the crypto space is “Bitcoin Halving.” The event is one of the most anticipated ones in the crypto industry this year.
With the event looming close, do you happen to know what it’s all about?
No? Let’s find out!
Understanding How Bitcoin Operates
The underlying technology of Bitcoin is blockchain. Renowned as a decentralized technology, blockchain allows a network of computers (called “nodes”) to validate that each transaction carried out on the Bitcoin Network is secure and correct.
Curious who are behind the network of computers validating Bitcoin transactions?
Well, the answer is “miners.”
Bitcoin mining is the process whereby people use their computers or nodes to authenticate transactions across the Bitcoin network. The individuals who participate in Bitcoin mining are known as “miners.”
Decoding Bitcoin Mining
Now that you are aware of Bitcoin mining and miners, let’s delve more into the process!
Bitcoin uses a system called Proof-of-Work (PoW) to validate each transaction on the Bitcoin network. Much like solving a puzzle takes time and energy, authenticating transactions also requires a level of effort – hence the name of Proof-of-Work.
Basically, miners need to give “proof” of their work. The reward? Well, this is when mining rewards come into the picture.
When a block is filled with transactions awaiting verification, it enters into a mining queue. Bitcoin miners compete with one another to be the first to discover a number with a value lower than the target set by the network.
Thus, the miners who succeed in this race are rewarded with mining rewards.
Bitcoin Halving: What is it?
Bitcoin halving implies cutting down the reward for Bitcoin mining to half.
Let’s break this down!
Remember, Bitcoin miners earn rewards for validating transactions on the network.
Interestingly, it takes the blockchain network about 4 years to open 210,000 more blocks. The standard is fixed by the creators of the blockchain to reduce the introduction of Bitcoin in the market continually.
The first reward was 50 $BTC. Here are the previous halving details:
· Nov. 28, 2012, to 25 $BTC
· July 9, 2016, to 12.5 $BTC
· May 11, 2020, to 6.25 $BTC
The next halving process, due in April 2024 will witness the reward at $3.125.
There are approximately 19.65 million Bitcoins in circulation as of March 2024. Thus, only around 1.35 million Bitcoins are to be released via mining rewards. The 2024 halving is anticipated to increase the price of Bitcoin, as also stated by Rob Chang, CEO of Gryphon Digital Mining, a privately held Bitcoin miner. Rob believes that the price of Bitcoin “typically ends up significantly higher a few months after” every halving, which may also be reflected following the 2024 Bitcoin halving.
Impact of Bitcoin Halving
Here are some of the noteworthy impacts that Bitcoin halving is likely to cause:
Demand
Just like the simple cycle of supply and demand, Bitcoin halving would reduce the supply of Bitcoin, thereby increasing its demand. This is particularly noticeable when analyzing the price of Bitcoin with every halving event
Investment
Although Bitcoin was introduced as a decentralized mode of payment instead of a source of investment, the cryptocurrency generated buzz among investors due to its profitability. The halving event is likely to increase the price of Bitcoin, thereby creating solid ground for an increase in investment value.
However, Bitcoin’s halving makes investment in Bitcoin speculative because those invested in the cryptocurrency are hoping for gains.
Mining
Bitcoin mining is a passive source of income for many miners. However, with Bitcoin halving, the endeavour to earn rewards becomes less. Therefore, large-scale mining facilities need to remain competitive with enormous equipment, money, and energy to conduct mining. Additionally, they need to maximize their mining capacity to maintain their position in the industry.
Wrapping it Up!
Bitcoin halving aims to reduce the mining rewards to half every four years. The reward system is expected to continue until 2140, once the proposed supply limit of 21 million Bitcoin is attained.
However, one of the most anticipated outcomes of Bitcoin halving is the humongous spike in its price. According to Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp, Bitcoin price may “increase dramatically” as a consequence of the supply shock. Higher prices of Bitcoin may play an incentivizing role for miners to continue Bitcoin mining.
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