Understanding Bitcoin halving and its effects
While cryptocurrency has gone mainstream in recent years, there are still a few related concepts that people don’t know about and one of them is Bitcoin halving. It’s a term that only pops out once in a while and is mostly unknown to newer crypto enthusiasts.
So what does Bitcoin halving entail and why does it matter? Take a look and dive deeper into the details here at Coin Betz.
How are Bitcoins made?
To understand what Bitcoin halving is, it’s important to first know how Bitcoins are mined. When a Bitcoin transaction is made, it needs to be validated by all nodes and verified by a miner before it’s added to a block and uploaded on the blockchain.
To make this happen, miners compete to add the next block in the chain by completing and solving mathematical equations to generate a hash. A hash is a 64-character output that locks the block so that it can’t be changed.
As a reward for every block they complete, miners earn a certain number of Bitcoins. Initially, miners earn 50 BTC per block.
What is Bitcoin halving?
As predetermined by Bitcoin creator Satoshi Nakamoto, the maximum supply of Bitcoins can only reach up to 21 million. With more blocks mined, the number of Bitcoins in circulation increases and inches closer to its capacity. To make the supply last longer, the creation and reward of Bitcoin are cut in half every 210,000 blocks mined or about every four years.
The first time Bitcoin halving happened was in November 2012 when the reward was cut from 50 BTC to 25 BTC. In July 2016, it was reduced again to 12.5 BTC. The most recent one occurred in May 2020, when the 12.5 BTC reward was cut down to 6.25 BTC per block.
What is the effect of Bitcoin halving?
A month before and after the Bitcoin halving, crypto experts and analysts noted the sudden rise in Bitcoin’s value. This happens because as the number of Bitcoin diminishes, the demand for it increases and its price surges.
People then saw Bitcoin halving as a great way to profit from Bitcoins. You can buy some before Bitcoin halves when the price is still low then sell or trade after once the value has already appreciated.
For example, when Bitcoin halving started in 2012, it was valued at $12 per coin. A year later, its value rose to $1,000. In the last Bitcoin halving in May, it was valued at $8,787. Since then, its value had risen to $58,000 in February and now sits at the $48,000 mark. This shows how much Bitcoin halving can affect its value amongst other factors.
Why halve the rewards?
Halving the rewards per block helps control the number of coins circulating in the market. Since mining blocks and creating Bitcoins will continue, so will the increase in supply and decrease in price, possibly resulting in inflation wherein Bitcoin loses its value over time. Halving them prevents this from happening. This way, people can enjoy the high benefits and value of Bitcoin in the longer run.
Title : Understanding Bitcoin halving and its effects
Published Date : 24th August 2021
Author : James