The third Bitcoin Halving just ended.
The Halving, certainly being discussed extensively at the moment as an increasingly crucial part of what makes Bitcoin valuable today, has always been a big part of the original Bitcoin lore. But how does it all relate to the current crypto ecosystem?
To discuss that, let’s start with the question: what is halving exactly?
Bitcoin is by construction a deflationary currency, which means that the amount of Bitcoin that will ever be created is fixed at 21 million Bitcoins.
The first relevant question to ask here is: how do Bitcoins get created again?
Well recall that miners create or “get” the new Bitcoins every time a block they mined is successfully verified and propagated to everyone else, becoming part of the “blockchain”. That’s how we get new Bitcoins. However, the original goal set out in Satoshi’s plan has always involved an evolution away from this mining reward, towards a healthy economy of supply and demand fed by transaction fees. As a result, every few years, the mining reward gets halved, until one day it will be 0.
So how does this affect you, the cautious cryptocurrency enthusiast?
In the past, the halving has been associated with an increase in the value of Bitcoin — and, as is often the case, a corresponding increase of cryptocurrency values across the board. That being said, given our current crisis, and Bitcoin’s bearish performance of late, it’s likely we won’t see a similar spike in value this time.
Bitcoin’s value in particular is often determined by the confidence people have in it — and as Bitcoin bull Mike Novogratz recently said, “It appears global confidence in just about anything has evaporated”.
A particularly important thing to note about Bitcoin prices is how Bitcoin relates to the existing crypto economy. The lessons we’ve learned from Bitcoin’s deflationary nature have revealed problems of illiquidity, problems with price volatility, and problems of scalability that limit Bitcoin’s real-world usability.
As a result, we’ve seen several other cryptocurrencies pop up over the years, each designed to solve a subset of the problems listed above. Among the different crypto asset classes, Bitcoin is a general purpose store of value. But as that store of value, Bitcoin’s pricing-via-supply-demand has caused high volatility in value. The equation of exchange tells us that proprietary payment “store-of-value” currencies, like Bitcoin, will always suffer from price fluctuation.
One way to understand this easily is that Bitcoin, and many other cryptocurrencies with it, was not designed to enforce a positive correlation between price and usage of the network. That is to say, the growth in the price of Bitcoin is not particularly clearly linked to network usage. That makes it all the more important to do your due diligence across the cryptocurrencies you support. A token that’s designed to track transaction volume has more inherent value — and each token holder sees direct rewards from the network effect.
That’s why the Bitcoin halving, and its uncertain pricing of late, should concern you. While Bitcoin will always be the world’s first cryptocurrency, in the past few years we’ve all learned valuable lessons about tying value to a token you invest in. That’s why it’s all the more important that we’ve designed Sperax’s token economy to capitalize on exactly those lessons.
Sperax offers two tokens: a stablecoin, specifically intended to keep the price stable so that it can be used in financial transactions without concern for value volatility; and a work token, as the Sperax network grows, this token becomes less risky. That same equation of exchange tells us that this ultimately increases the theoretical upper bound for maximum token value relative to transaction throughput.
As the crypto ecosystem transitions out of its nascent phase, these are lessons everyone would do well to keep in mind. And we certainly are doing our best to capitalize on those lessons from past failures to make Sperax the most secure platform out there, supported by a coin you can trust to be stable through volatile times.
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