Bitcoin Halving: How It Works and Why It Matters
Hello Family,
April 07,2024.
Let's start,
While national central banks keep a close eye on the availability of fiat currencies, the entire supply of Bitcoin remains set and unchangeable.
Many people are not aware that their local currency's supply might fluctuate dramatically at any time. After the COVID-19 epidemic, central banks all over the world supported their local economies by pumping money into the financial system in the form of freshly printed fiat currency. Amazingly, in 2020 alone, more than one-fifth of all US dollars in circulation were manufactured.
Excessive "money printing" had long-term consequences even though it was a temporary solution to prevent the collapse of the world economy. Global economies have been affected by rising inflation, which has been made worse by an expansion of the money supply.
Many people now question the value of their local currency since it seems to be created out of thin air as a result of the widespread money printing.
Due to this uncertainty, a number of rare assets have appreciated in value relative to fiat currencies like the Australian dollar, including real estate, commodities, and cryptocurrencies.
Bitcoin will only ever exist in 21 million units. As of right now, more than 19.66 million bitcoins have been mined, leaving slightly under 1.4 million to be released into circulation out of the total 21 million. The Bitcoin protocol "halve[s]" the amount of new coins that miners are awarded on a regular basis.
According to Bruce Fenton, the CEO of fintech startup Chainstone Labs, "one of the most important features of Bitcoin is its limited supply and issuance mechanism."
One of the reasons the most well-known cryptocurrency in the world is regarded as a store of value more equivalent to gold than a fiat money is because of the halving's function in regulating the supply of new Bitcoins.
Similar: Australian Bitcoin Buying Guide
Bitcoin Halving: What Is It?
Every four years, there occurs a Bitcoin halving event where the mining reward is split in half.
In order to ensure scarcity and thwart inflation, the halving policy was incorporated into the Bitcoin mining algorithm. Theoretically, if demand stays constant, the price of bitcoin should rise due to the sluggish issuance rate.
As of right now, Bitcoin's inflation rate is less than 2%, and this will go down with additional halvings,the CEO of the trading website CoinRoutes. When compared to Australia's 4.1% annual inflation rate for the year 2023, it appears to be quite favourable.
"What defines Bitcoin's finiteness is its production scarcity; as reward decreases, supply is constrained," explains Chris Kline, CEO of Bitcoin IRA. "A rising price at a time of limited supply leads to an increase in demand, which may entice investors to consider bitcoin."
Featured Partner Deal
1 Own Crypto by eToro
On the eToro website, invest with a cryptocurrency that millions of people trust.
Purchase and trade more than 70 cryptoassets on a user-friendly, safe platform.
Cryptocurrency assets are very speculative and unregulated. No safeguards for consumers. Money on the queue.
Bitcoin Halving: How Does It Operate?
All Bitcoin transactions are verified by a decentralised network of validators through a process known as mining. When they are the first to use sophisticated mathematics to add a block of transactions to the Bitcoin blockchain as part of the proof-of-work method, they are rewarded with 6.25 BTC.
6.25 BTC will be worth roughly $410,000 in the US in March 2024 at the current bitcoin price, which will encourage miners to continue adding blocks of transactions.
Roughly every ten minutes, new blocks of transactions are added, and after every 210,000 blocks, the Bitcoin code mandates that miners' rewards be cut in half. That occurs about every four years during times when there is typically more volatility in the price of bitcoin.
Similar: Various Bitcoin Investing Methods
The First Bitcoin Halving Occurred When?
November 2012 saw the first halving of the bitcoin currency. The most recent halving occurred in May 2020, while the subsequent one occurred in July 2016.
When Bitcoin was first founded in 2009, the mining incentive, or subsidy, was set at 50 BTC every block. Every time there is a fresh halving, the amount decreases by half. For example, the reward for mining Bitcoin decreased to 25 BTC each block during the first halving.
The last halving is scheduled for 2140. There will be 21 million Bitcoin in use at that time, and no more will be produced. Miners will then only receive transaction fees from users who make transactions on the blockchain.
The CEO of TAAL Distributed Information Technologies, a miner and provider of blockchain services, Richard Baker, notes that once the next halving takes place, miners may move their transaction processing capacity away from Bitcoin in an attempt to make up for lost revenue from other transactions.
Experts think that a network with fewer miners would be less secure.
However, Patricia Trompeter, CEO of cryptocurrency miner Sphere 3D Corp., points out that although the halving decreases the payout for miners, it also reduces the supply of new currencies without lowering the demand.
