Bitcoin Halving is one term which seems scary to Bitcoin owners. In this article we looked into bitcoin halving definition and we have made it simple even for dummies to understand.
In order to understand what the halving of Bitcoin means, we will need to get a basic understanding of how the Bitcoin network operates as regards the concept of halving.
The Bitcoin network is founded on a secure technology platform called Blockchain. It is basically a set of interrelated computers from different parts of the world.
These computers are interrelated because they all have the Bitcoin’s code downloaded in them. The Bitcoin code in a computer is what makes that computer part of the Bitcoin network.
The adoption of this system as part of the functionality of the Bitcoin network makes the system cheat-proof. Each computer that makes up the Bitcoin network has the entire history of transactions carried out.
The nature of the Bitcoin networks and the transactions carried out by Bitcoin miners are transparent. Everyone gets to be aware of what’s happening.
There are no hidden shades. The transactions made and how they were executed are open for everyone to see.
Even persons who were not directly participating in the mining and transaction process can have a peep at the transaction records.
The number of computers which have the Bitcoin code downloaded in them are well over 10,000 and it is expected that this number will receive consistent boosts.
This is because, the more the number of computers or network nodes operating Bitcoin’s code, the safer and more stable the network will be. Although not everyone who owns a computer or node running the Bitcoin’s code can be called a Bitcoin miner.
Participation is open to persons who have enough storage to download the blockchain and every transaction record – and it ends there.
Still on how the Bitcoin network works, let’s look at Bitcoin mining which is an integral aspect of Bitcoin.
What Is Bitcoin Mining?
Bitcoin mining is simply the art of using computers specially designed to operate Bitcoin’s code to participate in the Bitcoin’s blockchain network.
It is the process which “issues” out and bring new Bitcoins into circulation. Bitcoin mining is the blockchain version of what central banks do when they issue fiat currencies.
Before anyone us enlisted as a Bitcoin miner, they must show a Proof of Work.
The Proof of Work is a system adopted by Bitcoin where potential miners prove that they actually did work to process transactions and hence they deserve rewards.
The work that must be done by Bitcoin miners include the time and energy used in running the computer hardware and the resolution of very complex mathematical equations.
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A miner is expected to solve mathematical equations and confirm how legitimate a transaction is.
When the process of solving and confirming is complete, the miners add all their transactions to the end of a block. They will then create chains of these blocks.
The process of adding transactions at the end of blocks and the creation of chains is why the Bitcoin operational technology is known as blockchain.
On successful completion of a block, the Bitcoin miners involved in the processing and confirmation of transaction are rewarded with Bitcoins.
Now to what Bitcoin Halving actually means. Remember, all I have been trying to explain is how the Bitcoin network works.
What Exactly Is Bitcoin Halving ?
Bitcoin halving is an artificial form of Bitcoin inflation. It is an event wherein the amount of Bitcoin rewards given to Bitcoin miners is cut into half.
After the mining of 210,000 Bitcoin blocks or the completion of a four (4) year cycle, Bitcoin rewards are divided in two.
Halving cuts in half the rate with which new Bitcoins are brought into circulation. Bitcoin predicts to have a finite supply and this halving system shows that it is on its way to achieve that.
According to Bitcoin, the halving will continue till year 2140. That is a century and twenty years from now (120 years).
There are twenty one million (21,000,000) Bitcoins. Out of this, well over eighteen million (18,000,000) Bitcoins have been mined already leaving a little below three million (3,000,000) Bitcoins to be mined.
History of Bitcoin Halving
Around May, 2020 Bitcoin experienced a halving that made the reward for mining Bitcoin to drop to 6.25 Bitcoins per block.
Originally, 50 Bitcoins was given to Bitcoin miners when it launched in 2009. The first halving reduced the Bitcoin reward from 50 to 25 Bitcoins per block.
Subsequently, it became 12 Bitcoins per block and after the halving in May, 2020 the reward for Bitcoin miners is 6.25 Bitcoins per block.
Halving helps make Bitcoin scarce and with its scarcity comes an appreciation in its value and price.
How Bitcoin Halving Affects The Price of 1 Bitcoin
The primary reason behind halving is to reduce the number of available Bitcoins which will translate to an increase in the price of 1 Bitcoin.
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The first halving took place in November 2012 before then the price of 1 Bitcoin was $11.
After the halving in 2012, the price of 1 Bitcoin rose up to a whooping $1,150. That is a multiplication by 100 of the initial price.
The price of 1 Bitcoin dwindled to $650 before the second halving which took place in July 2016.
One year and five months after the second halving, precisely on December 17th, 2017, the price of 1 Bitcoin rose to $20,000.
Without mincing words, with every halving comes a Bitcoin inflation which translates to a heightened demand. When demand is high, the prices go up – simple logic.
When Halving Goes Wrong
There is a possibility that the indicators behind the halving theory may be wrong. Such that, a halving event may occur but the demand does not increase as expected.
Bitcoin has provided a backup plan, a modality just in case the turn of events do not subscribe to the normal, believed outcomes. This modality changes the difficulty in mining a Bitcoin.
Bitcoin miners will be incentivized when halving goes wrong by a reduction of the difficulty attached to mining new Bitcoins.
When Is The Next Halving?
From the last halving, it will take approximately 1,458 days before the next halving takes place. This next halving is going to be the fourth in Bitcoin’s history.
At the next halving, the Bitcoin reward for Bitcoin miners will drop to 3.125 Bitcoins per block.
Bitcoin halving is one of the systems which has had so much speculations, volatility and so much uncertainty. Almost every nick and harry has a sub-theory to postulate about the halving of Bitcoin.
One thing is sure, no body knows how the network and the Bitcoin market will respond to the event of a possible Bitcoin halving in future.
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