in this article of QuantVan, we explain about Bitcoin Halving. For a better understanding of a”Bitcoin Halving”, you must first know some information about bitcoin and its blockchain and its mining progress.
bitcoin and its blockchain are a collection of computers, or nodes, around the world that all have Bitcoin’s code downloaded on them. Each of these computers has all of Bitcoin’s blockchain stored on them. This means that each computer has the entire history of Bitcoin transactions, which ensures that no one can cheat the system as every computer would deny the transaction. In this way, Bitcoin is entirely transparent and no one can make a transaction without everyone seeing it happen. Even those who do not participate in the network as a node or miner can view the transactions taking place live by looking at block explorers.
So What is Bitcoin halving?
After every 210,000 blocks or about every four years, Bitcoin goes through a process called “halving.” This mechanism was integrated into the protocol by Satoshi Nakamoto himself.
the reward that every Bitcoin miners for processing transactions receive, will cut in half. This cuts in half the rate at which new Bitcoin is released into circulation. This is Bitcoin’s way of using a synthetic form of inflation that halves every four years until all Bitcoin is released and is In circulation.
This system will continue until around 2140. At that point, miners will get reward with fees for processing transactions that network users will pay. These fees ensure that miners still have the incentive to mine and keep the network going. The idea is that competition for these fees will cause them to remain low after halvings finished.
Bitcoin halving also cuts in half Bitcoin’s inflation rate and the rate at which new Bitcoins enter circulation. This controlled rate of monetary inflation is one of the main differences between most cryptocurrencies and traditional fiat currencies, which essentially have an infinite supply due to the monetary policy of central banks.
In 2009, the reward for each block in the chain mined was 50 Bitcoins. After the first halving it was 25. then 12.5. by May 11th, 2020 It will be 6.25 Bitcoins per block.
Why Halvings Are Exciting?
In the past, these Bitcoin halvings have correlated with massive surges in Bitcoin’s price.
The first halving, which occurred in November of 2012, saw an increase from about $11 to nearly $1,150.
The second Bitcoin halving occurred in July of 2016. The price at that halving was about $650.
This process has proven successful twice. So far, the result of these halvings has been a ballooning in price followed by a large drop. The crashes that have followed these gains, however, have still maintained prices higher than before the halvings.
Why Are Halvings Significant?
The Bitcoin halving generates a lot of excitement in crypto circles.
they ensure that coins will be issued at a steady pace, following a predictable decaying rate. thus, they are at the very core of the cryptocurrency’s economic models.
There will only ever be 32 Bitcoin halving events.
Once the 32nd halving is completed, there will be no more new Bitcoin created. The maximum supply of 21 million Bitcoins will have been reached.
There are contrasting theories as to how the Bitcoin price would react to the halving. In 2012 and 2016, Bitcoin did not have a strong infrastructure to facilitate trades as it does in 2020. Even up to 2017, many exchanges were facing lots of technical issues, losing client funds with no insurance or backup funds in place.
It was not until 2019 that reputable custodians, futures markets, and exchanges emerged. Thus, 2020 will be the first time Bitcoin faces a block-reward halving with an efficient market infrastructure in place, with some balance between retail traders and accredited or institutional investors.