Bitcoin and the Blockchain technology have had a great impact on the world since its creation in 2008. When first released, the technology was not only revolutionary but it promised to become the coin of the future. A decentralized currency that would rule the transactions of the world.
Since its release to the public, many things have happened. Suspicions and myths have surrounded the coin, then, when it became more widely accepted traders started working their magic and profiting from this new market. We have seen prices go up to $20,000 and down to $3,000 in less than a month and now 2020.
2020 has been a very particular year for the financial market. The market crash we’ve seen due to the pandemic was completely unpredictable. But when it comes to Cryptocurrency, it seems that things are getting just better.
Meaning of Bitcoin Halving
Halving is the event that occurs once 210,000 blocks are mined (roughly every 4 years). When this happens, the reward for mining BItcoins is cut in half.
This is very important for a number of reasons. The first one is that Bitcoin has a limited supply of only 21,000,000 coins. This means that every year, we get closer to that limit, and when that happens there will be no more Bitcoins to be mined. However, it is not as chaotic as it might sound.
Cutting the rewards in half means that each block will create less bitcoins as we reach that number. It is a synthetic form of inflation that will be halving that reward until it reaches the 21 million coins.
Now, here’s the interesting part.
The system will not become useless once that happens. At that point, the miners will not be rewarded with new bitcoin, but with fees for processing transactions. It is a pretty well-thought system that will allow the system to keep functioning even after the limit is reached.
Now, for the people that are still unsure about whether the system will keep working or not, you can rest assured that will not happen during our lifetime. Bitcoin mining will continue to work the same way until somewhere around the year 2140.
Why You Should Care About Crypto Halving?
This question can be answered with a:
“You should care because prices will probably go up.”
But to really understand why this is so important, you have to also take a look at the historical data. When it first started back in 2009, the reward for each block mined was 50 Bitcoins. After the first halving in 2012, the reward for each block became 25 Bitcoins. Then 12.5 Bitcoins and now, this 2020 will be cut to 6.25 Bitcoins.
If that doesn’t give you a good picture of how important this is, let’s see it from another perspective. Imagine that instead of Bitcoins we’re talking about Oil or Gold.
Can you imagine what would happen to gold value if the available supply was cut in half every four years?
Yes. It’s value would skyrocket every single time that happens. Based on previous data, there’s a chance that the Bitcoin will double its price. And all of this is possible thanks to the blockchain ecosystem and the miners.
What is Mining?
Mining is what makes a blockchain what it is. Simply put, Bitcoin Mining is a process in which computers act as transaction processors.
Since it is not a centralized environment, anyone can participate. However, rewards are provided according to the effort made (If your computer is not powerful enough, your reward will not be the same as a guy who has specialized equipment.)
It is really important to understand this, as it is what keeps Bitcoin alive and what allows some predictions to be made.
When a transaction is made, the miner needs to solve a mathematical problem to confirm the legitimacy. Once the transaction is confirmed it is added to a block that will eventually reward the involved parties with Bitcoin once it is filled.
That’s how a blockchain is made, how bitcoins are created, and how mining becomes profitable.
When Is The Next Bitcoin Halving?
Since these events are not meant to occur based on time but on the number of blocks unlocked, crypto halving dates are not completely accurate and are based on estimates.
Predictions can be made thanks to a number of factors. It is the equilibrium between these factors that will keep things going for a lot more time and make predictions easier.
The number of attempts that miners perform every second to process and review each transaction is called Hash Rate. It is very important because Hash Rate is basically the power being used to mine the Bitcoins.
Since the hash rate is measurable that information is used in conjunction with the number of transactions to determine how many blocks are being filled in a determined period of time. That number is then used to predict how much time will it take to reach the 210,000 blocks required for the next halving.
Currently, 12.5 new Bitcoins reach the market every 10 minutes. Once the halving occurs, only 6.25 new Bitcoins will hit the market in the same timeframe.
Bitcoin halving works like a synthetic inflation method that reduces in half the number of bitcoins that enter circulation. This event makes it harder to reach the 21 million coin limit and has a direct impact on its price.
The previous two halvings have shown an intense activity that leads to prices higher than before, and that’s something that we can expect for this Third Halving as well as the upcoming ones.