- Since bitcoin’s launch in 2009, two halving events have occurred: November 2012 and July 2016. The third bitcoin halving is expected to occur in May 2020
- Bitcoin halving is essential to maintain its value by preventing inflation as well as maintaining a high level of scarcity
- It is not possible to predict bitcoin’s price accurately after the 2020 halving. Crypto experts sound sure that the price will shoot, up considering analysis from past halvings but other critics disagree
- Bitcoin miners will cry foul as the forthcoming halving will result in their revenues reduced
A recent tweet by Trezor stated that the third bitcoin halving would take place in the next 365 days, intel that has elicited curiosity among cryptocurrency enthusiasts. But what is bitcoin halving and its significance to the crypto community? Here is an in-depth review.
In exactly 365 days we will experience the third bitcoin halving in history. This event marks a 50% decrease of block rewards, lowering the total supply of bitcoins mined from one block to only 6.25 BTC. How will you celebrate this event?
— Trezor (@Trezor) May 21, 2019
What is Bitcoin Halving?
Some folks in the crypto community are excited about this event while other Cryptonians are more concerned about its effects. So, this begs the question; what is bitcoin halving? What’s all this fuss about? Apparently, Satoshi designed a system that will ensure the price of bitcoin remains relevant despite the adverse effects of inflation. This system is known as bitcoin halving.
The Math Involved
The basics of bitcoin mining encompass the process of adding transaction records to bitcoin’s public ledger blockchain by solving complex mathematical equations using special software as well as sophisticated computer power. Therefore, whenever miners mine a bitcoin block, they are rewarded with new bitcoin, and that’s how more bitcoin come into existence.
Two primary principles guide the mining of bitcoin; First, there is the supply of bitcoin which is not infinite (it is limited to 21 million BTC), and the other principle is the number of bitcoin generated per block which usually decreases by 50% for every 210,000 blocks.
Hence, since it takes on an average one hour to mine 6 blocks and halving occurs once after every 210,000 blocks are mined, the math dictates that halving occur after every four years and the 50% decrease means that the mining reward is reduced by half every time a halving event occurs.
For instance, if today each miner receives 12.5 bitcoin for solving a block (mine), after the upcoming halving event, they will receive only 6.25 BTC for the same amount of effort, and the trend will continue till the last halving. From this analysis, it is safe to say that the last BTC will be the 21 millionth and will be mined in 2140.
History of Bitcoin Halving
Since its launch in late 2009, bitcoin halving has only occurred twice: November 2012 and July 2016. The next four bitcoin halving events are scheduled to happen as outlined below:
|Bitcoin Halving Schedule||Tentative Month||Bitcoin Block Reward Halving|
|2020||May 2020||12.5 BTC|
|2024||May 2024||6.25 BTC|
|2028||May 2028||3.125 BTC|
“Previous halvings have shown a negligible impact on Bitcoin’s price. This is because rather like a much-anticipated interest rate, cut-everybody already knows it’s going to happen in advance.”
Nevertheless, no one is exactly sure how the bitcoin price or the general economy created around it will react in the upcoming halving event set for May 2020.
Significance of Bitcoin Halving
Bitcoin halving is the economic structure that ensures BTC is distributed fairly in full transparency through an open competition. It also incentivizes miners to validate transactions while still preserving the economic principle of scarcity. Bitcoin halving is arguably the main reason why the price of bitcoin continues to soar high as compared to other cryptocurrencies nine years after its launch.
Satoshi’s Essence of Bitcoin Halving
While responding to an email back in 2008, Satoshi Nakamoto agreed that halving was necessary to prevent inflation of the currency.
“The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation, and early holders of money will see its value increase. Coins have to get initially distributed somehow, and a constant rate seems like the best formula.”
Similarly, Vitalik Buterin – the main man behind the Ethereum project, agrees that bitcoin halving is necessary to control inflation.
The whole concept of halving which reduces the value of bitcoin mining reward by 50 percent once every 210, 000 blocks are added to the blockchain, gives the Bitcoin Network assurance that BTC will not be affected with high inflation during its progressive distribution process thus its high level of scarcity will be maintained and in turn uphold its value.
Forecast: What will be the Impact of Bitcoin Having on its Market Cap Status?
As mentioned earlier, it is difficult to predict bitcoin’s worth after the 2020 halving. Nevertheless, bitcoin’s halving history can give us a glimpse of its future market value.
Here is a simplified analysis of past bitcoin halving effect on its prices:
1st halving (11/28/2012): Price bottomed 378 days before it rose by 510 percent.
2nd halving (07/09/2016): Price bottomed 539 days before it rose 309 percent.
3rd halving (05/25/2020): ??
From that data, whether you are good at solving puzzles or not, you must have noticed that the price does not increase immediately at the spot after halving has occurred. Instead, it takes close to 10-12 months post the halving period to reach new heights. Not to sound so sure, crypto and financial experts are optimistic that the price of bitcoin could hit up to the $15000 mark when the post-2020-bitcoin-halving sinks in.
Still, there is still a huge chance that this may not be the case as other crypto critics seem to think that the reduction in supply may prompt the big players in the industry result to executing attempts that may cause a gradual reduction in price to avoid sharp spikes and dips. Although that sounds like a far fetched prediction that depends on many variables, but if it happens, the residual effect will mean that halving will have had a minimal impact on the price of BTC.
The Bottom Line
When you thought you knew it all about bitcoin, new semantics regarding its mechanisms arise. Bitcoin halving has already happened twice, and not many crypto traders have considered its aftermath effects when forecasting the price of bitcoin. Good news, we now know that it occurs after four years, and it’s necessary to keep bitcoin’s inflation in check and maintain its value, which was Satoshi’s philosophy and intentions.
Well, it may not be possible to predict bitcoin’s price after the 2020 halving, but we can get ready for it. Bitcoin miners who will be largely affected by the significant drop in revenue in the phase of a high cost of mining should re-adjust their techniques to counter this effect, and the crypto community will have to decide wisely whether to buy or sell their BTC assets as we wait to see where the price charts will take us.