What The Bitcoin Halving Is and Why Crypto Investors Should Care:
Bitcoin Halving: What Is It?
About Every Four Years, there is a Bitcoin Halving that lowers The Block Reward by 50%. As a result, there are fewer bitcoins coming onto the market, increasing their scarcity and potentially driving up their price if the market stays the same.
The Blockchain's Automatic Procedure for approving transactions and creating new blocks, known as mining, includes block rewards. If a competitor, known as a miner, solves a cryptographic puzzle first, they get awarded additional bitcoins.
The Network Launches a new race when their block is put to the blockchain and they are rewarded. In the hopes of earning an ever-decreasing reward, all miners verify the information in the recently added block while attempting to solve the problem for their own new blocks.
ESSENTIAL LESSONS:
- Every Four Years, there is a Bitcoin halving event where the mining reward is halved.
- Halvings lower the quantity of new coins that are available by slowing down the rate at which they are minted.
- On April 19, 2024, Bitcoin underwent its most recent halving, yielding a block reward of 3.125 BTC.
- The last halving is anticipated to take place in 2140, at which point there will be 21 Million Bitcoins in circulation, the maximum amount.
Is Bitcoin Halving a Good Thing?:
There are several reasons Bitcoin halvings are considered by many to be good for Bitcoin's Ecosystem and Market Value. For others, it might not be such a good thing.
Inflation:
One of the key concepts behind halving the reward is to address inflation concerns. Inflation is a decrease in the amount of goods a certain amount of currency can buy at any given moment. In the U.S., inflation is measured by how much it costs to buy a basket of goods. There is an acceptable inflation rate that is considered good for an economy—usually 2%—but "This Number Is Generally A Target Set By Central Banks as a Goal Rather Than a Reachable Figure."
The Bitcoin Halving is intended to counter any inflationary effects on Bitcoin by lowering the reward amount and maintaining scarcity. However, this inflation "protection" mechanism does not protect Bitcoin users from the inflationary effects of the fiat currency to which it must be converted to be used in an economy.
Gains made regarding market value might offer inflation protection for investors, but they don't for the cryptocurrency's intended use as a payment method.
Demand:
Because a halving reduces the number of new Bitcoins introduced, demand for New Bitcoins generally increases. This can be noted by looking at Bitcoin's price after each previous halving event—it has typically risen. "The Historic Increase in Demand Has Driven Price Increases", which is a good thing for investors and speculators.
Investing:
Bitcoin wasn't intended to be an investment. It was introduced as a payment method that attempted to remove the need to have regulatory agencies or third parties involved in transactions.
It became popular with investors once it was noted that there was the potential for gains. Investors poured into the new asset space, creating demand that the cryptocurrency's designers may not have anticipated. For investors, a halving represents a reduction in the new coin supply, but it also offers the promise of an increase in investment value if the event's effects remain the same. But this places Bitcoin investing into the realm of speculation because those invested in the cryptocurrency are hoping for gains.
Mining:
"Miners are The People, Groups, or Businesses That Focus on Mining For Its Profitability". Even as Bitcoin's price fluctuated over the years, it remained a lucrative endeavor—if it hadn't, the large mining businesses wouldn't have continued operating.
However, a halving cuts mining rewards, so the endeavor becomes less profitable with each halving if prices remain the same or drop. The Large-Scale Mining Facilities needed to remain competitive require enormous amounts of money and energy. The equipment and facilities need maintenance and people to conduct it. They also need to upgrade their mining capacity to maintain their position in the industry.
For Instance, "Marathon Digital Holdings", one of the world's largest mining firms, increased its Bitcoin holdings to 16,930 and its fleet of Bitcoin miners to 231,000 in February 2024. This brought the Firm's Hash Rate to 28.7 Trillion Hashes Per Second (about 5% of the network's total hash rate as of May 2024).
The increase in production capacity and holdings was likely due to anticipations of the April 2024 halving and the amount of hashing power required to remain competitive while having the liquidity necessary to finance its operations.
For Smaller Miners, a decrease in the reward means lower chances. Miners who are part of a mining pool will likely experience smaller rewards, even if prices increase—the reward is being cut in half, but Bitcoin's price is not likely to double unless there is a drastic market event.
Consumers:
Consumers and Retail Bitcoin users might be affected by a halving in the value of the Bitcoin they hold. Those who buy Bitcoin to make purchases will generally only be affected by price fluctuations, which may or may not remain similar to those before the halving occurred.
For those using Bitcoin for remittances, a halving means the same thing as it does for shoppers. The value of their remittances will depend on Bitcoin's market price after the Halving event.
When Is the Next Bitcoin Halving?:
The next halving is expected to occur in 2028 when the block reward will fall to 1.625 BTC. The first Bitcoin block reward was 50 Bitcoin. There have been four halvings since 2009. These halving dates were:
Nov,28, 2012, to 25 Bitcoins
July,9, 2016, to 12.5 Bitcoins
May,11, 2020, to 6.25 Bitcoins
April,19, 2024, to 3.125 Bitcoins
As of May 2024, about 19.7 Million Bitcoins were in circulation, leaving just around 1.3 million to be released via mining rewards.
Should You Invest in Bitcoin During a Halving?
Many investors have high expectations for halvings because, In The Past, "Prices Generally Trended Upward After The Event." However, the trends historically moved slowly, over months and years until the next halving, and there is no guarantee that Bitcoin will follow the same trajectory. So, whether you invest in Bitcoin before, at, or after a halving depends on market conditions at the time, your outlook, and your risk tolerance level.
For instance, the latest halving was unique among halvings in that Spot Bitcoin ETFs were approved by The SEC only a few months before the event. Investors and speculators flocked to these new ETFs or moved capital from the Once-Popular Bitcoin ETF Trusts to them.
One month after the halving, the market shifted again, and prices dropped. The ETFs experienced significant outflows at the beginning of May, followed by a similar level of inflows—in mid-May, the market became more optimistic about Ether ETF while bitcoin's price soared.
Right now, at least, it seems like the only thing anyone can do is make crazy predictions about what the market will do.
What Happens If Bitcoin Is Split in Half?
"Halving" in the context of Bitcoin means cutting the sum in half, or halving the number of tokens granted. This mimics diminishing returns while increasing scarcity, which raises demand.
What Are the Bitcoin Halving Dates?:
Halvings have occurred on the following dates:
Nov, 28, 2012, to 25 Bitcoins
July, 9, 2016, to 12.5 Bitcoins
May, 11, 2020, to 6.25 Bitcoins
April, 19, 2024, to 3.125 Bitcoins
Mid-2028, to 1.5625 Bitcoins
What Time is Bitcoin Halving 2024?:
"The Bitcoin blockchain conducted its 2024 halving on April 19, 2024."
The Bottom Line:
A Bitcoin halving cuts the rate at which new Bitcoins are released into circulation in half. The rewards system is expected to continue until 2140, when the proposed limit of 21 Million Bitcoin is theoretically reached.
In 2009, the reward for each block in the chain mined was 50 bitcoins. After the first halving, it was 25, 12.5, and then 6.25 bitcoins on May 11, 2020. The reward was reduced to 3.125 when the latest halving occurred on April 19, 2024.
Bitcoin Halving has significant implications for its network. For miners, the halving event may result in consolidation in their ranks as individual miners and small outfits drop out of the mining ecosystem or are taken over by larger players.
The Comments, Opinions, and Analysis posted on Guru Of Finance are solely meant to be used for online education. See our warranty and liability disclaimer for further details. As of the writing date of this piece, the author does not now own any Bitcoin.
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