Bitcoin is a digital currency and transactions can be verified and recorded in a public ledger. The Bitcoin block reward halved on July 9th, 2016 and the next halving is expected to happen sometime around 2020. What does this mean for bitcoin? There are many implications of the Bitcoin reward-halving for the future of Bitcoin. One implication is that transactions will become more expensive as miners will require higher fees to validate transactions. Another implication is that Bitcoin’s price may decrease as the finite supply of Bitcoins gets smaller with each halving event. Here are some ways both positive and negative effects of this process that might happen in the future.
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Bitcoin is a virtual or cryptocurrency that was released in 2009. It is considered to be the first decentralized digital currency. Bitcoin was designed to work as peer-to-peer electronic cash system and it has been growing in popularity ever since.
Bitcoin is created by mining, which is in essence running computer programs to solve complex mathematical problems in order to generate bitcoins. As more bitcoins are mined, the computational difficulty of solving these mathematical problems increases. The number of bitcoins generated per block decreases with time until the maximum number of coins in circulation has been reached, at 21 million coins.
The Bitcoin block reward halved on July 9th, 2016 and the next halving event is expected to happen sometime around 2020. What does this mean for bitcoin? Read on to find out!
What is Bitcoin Halving?
Bitcoin’s 2020 halving took place today. This is when the number of coins created by mining is halved, and it has much significance to investors in cryptocurrency because each previous event has meant a significant change in price. Halving refers to an event where the number of coins miners are receiving for adding new transactions onto a blockchain is halved. The Halving mechanism is an amazing part of Bitcoin, which was implemented to ensure there is only a limited amount of coins. Bitcoins are created in a limited supply and with the laws of supply and demand, there is no end to how many will be generated.
Bitcoin mining takes place every 210,000 blocks which are about 4 years apart. This is to break down the payment of miners who are paid in Bitcoin for adding the blocks containing transactions data into a blockchain.
What Are Block Rewards?
Block rewards are the prize miners receive from the network for “mining” Bitcoin’s blockchain. It is a form of incentive to mining, which fulfills its role in securing and verifying transactions on this decentralized system. In brief, mining computers produce trillions of hashes per second to guess the proper hash that will link previous blocks in the blockchain with next blocks. In order to encourage people to mine, successful miners get a block reward of new bitcoin combined with any fees from the transactions included in the block.
What is a Block and Bitcoin Mining?
A block is a file that stores 1MB worth of transactions on the bitcoin network. As transactions happen more, the amount of data being stored on these transactions increases. This causes the size of bitcoin blockchain to grow as well. In December 2020, the size of the bitcoin blockchain is 308 GB. In December 2012, it was only 4.52 GB!
A miner is someone that competes to add the next block of bitcoin’s blockchain network. It uses powerful computers and solves complex mathematical problems in order to produce a 64-character hash key that locks the block. For doing so, they are rewarded with bitcoins.
The Relationship Between Bitcoin Halving and Bitcoin’s Price
While history does show that there is a positive correlation between halvings and increases in price, it should be noted that this is not the case for all transactions. The price of bitcoin also falls depending on other factors like regulation or market speculation.
First halving: In 2012, the price of bitcoin was around $11 and rose to $12 by 2015. It increased in value over a year period.
Second halving: In 2016, the bitcoin network had completed 420,000 blocks. There was a second halving that year and then the price went up to $20,000 by December 2017.
Third halving: The second halving occurred in May 2020, which marked the beginning of another bull run for bitcoin. In December 2020, bitcoin is trading near about $19,000.
What Happens After the Last Bitcoin Halving?
The last bitcoin halving is predicted to occur in 2040, at which point block rewards will no longer be paid out in the form of bitcoin. After the last halving, Bitcoin miners will be rewarded. This means they are incentivized in order to continue processing transactions on the blockchain.
Bitcoin Halvings: Key Events
Total new bitcoins between events
3 January 2009
0 (genesis block)
50 new BTC
28 November 2012
25 new BTC
9 July 2016
12.5 new BTC
Expected week commencing 18 May 2020
6.25 new BTC
3.125 new BTC
1.5625 new BTC
|Total new bitcoins between events
|3 January 2009
|0 (genesis block)
|50 new BTC
|28 November 2012
|25 new BTC
|9 July 2016
|12.5 new BTC
|Expected week commencing 18 May 2020
|6.25 new BTC
|3.125 new BTC
|1.5625 new BTC
How Does Bitcoin Halving Affect Bitcoin’s Network?
Looking at the effects of Bitcoin halving on various parties involved in the bitcoin network and a brief description, we can see how it affects major stakeholders like miners, investors, traders and more. These are just some of many talking points about Bitcoin Halving.
Effect on Miners
Bitcoin’s ecosystem is complicated. What does the effect of mining on it do? As more miners enter, demand increases and prices go up. However, fewer rewards can also make it difficult for individual miners or small mining outfits to survive in Bitcoin’s ecosystem because they may find it harder to compete with large organizations like Bitmain who have lots of resources behind them.
The number of Bitcoin miners decrease when the cryptocurrency’s price increases, but that is not always a bad thing. When its price decreases, there will more opportunities for investors to purchase cryptocurrencies and invest in mining equipment instead of using it themselves. It increases the possibility of 51% attack by leaving without any defenses. The network is less secure as a result.
Effect on Investors:
The halving of a cryptocurrency generally results in an increase in price. This is due to reduced supply and rising demand, which means it could be good news for investors. The pace that the price will jump is dependent on what happens before the halving takes place, as was demonstrated earlier with different conditions occurring each time.