It may seem simple: halving is the reduction in half in the issuance of new Bitcoins , that is, something equivalent to the reduction of inflation. This event is very rare, as it occurs every 4 years, the next one being around May 12, 2020. You can follow this counter at: bitcoinblockhalf.com
Although it is very cool in theory, what is its practical effect? What changes in the user's daily life and why is this so important for cryptocurrency? These are the main questions we want to answer in this article.
But calm down, before trying to understand the effects of halving, let's start one step earlier. After all, where do these Bitcoins come from?
Importance of mining
It doesn't matter your level of knowledge, because in this 3-minute video we explain in a simple way some super important concepts about blockchain and mining.
The mining is one of the main pillars of Bitcoin because this computing power, and ensure that transactions are considered valid , also allows all nodes (nodes) to verify that they are following the chain of more current blocks.
Even if there is no transaction, which is very rare, the mining process works like a "clock" for the network , issuing new coins according to the schedule proposed by Satoshi Nakamoto, whoever this (s) genius (s).
The cryptographic process behind mining, the SHA-256 algorithm , is so complex that the only way that miners have to solve this equation is through trial and error. For this reason the operation is time consuming and requires so much energy.
The difficulty setting built into the bitcoin software ensures that, on average, each block will be entered every 10 minutes. This formula ensures that regardless of the investment in new mining companies, the number of new Bitcoins issued in the year follows the original schedule .
Important:
the term blockchain does not appear in the Bitcoin whitepaper. There is a single mention for “chain of blocks”. In his communications, Satoshi regularly used the expression timechain, a sequence of data ordered by the time interval between each mined block.
Importance of halving
Halving is Bitcoin's main monetary policy, as by reducing the reward given to miners for each block found, we are effectively producing less BTCs per month, reducing its equivalent inflation.
Think of the genesis block, the first mined on January 3, 2009. There were no coins in circulation, and yet your reward was 50 BTCs. When the 420,000 block was mined in 2012, there were already an incredible 15.7 million mined.
In other words, as much as the reduction of halving is linear, reducing it in half every four years, the fall in inflation is exponential. As of the year 2140, there will no longer be a single satoshi left to be mined. Remember that 1 satoshi equals 0.00000001 Bitcoin, which today is worth R $ 0.00037.
Halvings of 2012 and 2016
Some say that this phenomenon will repeat itself in 2020, while others claim that the market has become more mature, and therefore there will not be such an effect.
The fact is that on both occasions, following the first halving in November 2012, and after the second in July 2016, there was a sharp rise in price .
Note that the increase is not instantaneous, on the contrary. The valuation process, or “bull run”, took place in the twelve months following halving. Although it is impossible to pinpoint a single factor responsible for this movement, we can raise:
Fear of a fall in the hashrate, the mining power, after the cut in the miners' reward caused by halving;
Strong and lasting sale by investors and the miners themselves, after a long period of accumulation;
Lack of appetite for new entrants, since after halving, historically the price is well below the historical top.
Impact for miners
As we mentioned, the miners who lose the most in this move, at least initially. Your energy cost will not drop by half, nor will the interest charged on the loan made to acquire the equipment and rent the space. However, more than 90% of the miners' income comes from this subsidy of new Bitcoins for each block mined.
Although each user pays a fee to include their transaction in the blocks, and therefore obtain the necessary confirmations, historically this value is not representative in the miners' income. In the coming decades, as the premium for each block mined decreases, it is expected that the rates for each transaction will gain relevance.
For this reason, there is always a fear that a large number of miners will shut down the machines after halving , thus avoiding damage caused by high energy consumption. This impact on the bitcoin network will be addressed by reducing the mining difficulty, which occurs every 2016 blocks, or approximately 14 days.
Impact for holders and 2020 forecast
The only change for holders is scarcity. Given that the number of new Bitcoins generated monthly drops by half, if the demand remains more or less constant, there is an upward pressure on the price.
The problem is that there is no constant demand for Bitcoins . There are a few companies that pay salaries, or part of them, in cryptocurrencies. It is also noticed a greater acceptance by service providers, freelancers, who work remotely. However, these values are not yet significant within the universe of transactions.
