Imagine a world where a digital gold mine cuts the gold output in half every four years. This event is commonly referred to as Bitcoin halving or sometimes ‘halvening.’
In the Bitcoin world, it’s a recurring event where the reward for mining new blocks gets reduced by 50%. This means that miners who are busy verifying transactions in the blockchain network get paid 50% less for their efforts.
But why should you care? Well, Bitcoin halving events are crucial for anyone interested in trading cryptocurrency. These events lower the production of new Bitcoins, essentially limiting the influx of new coins into the market. If the demand for Bitcoin remains robust, this limitation could drive prices upwards.
Now, this isn’t a surefire thing – the circumstances around each halving are unique, and Bitcoin’s demand has been known to swing dramatically.
Next Bitcoin Halving
As for when the Bitcoins next halving is scheduled to take place, it’s expected to happen around April 2024 when the blockchain hits 740,000 blocks. The reward for mining a block will decrease from 6.25 to 3.125 Bitcoin.
However, the specific date isn’t set in stone since the generation of new blocks is variable, with the network averaging one block approximately every ten minutes.
Let’s take a step back and look at the last Bitcoin halving that took place on May 11th, 2020.
The miners’ reward dropped from 12.5 to 6.25 Bitcoin per block, tightening the coin’s supply.
This led to a significant uptick in Bitcoin’s value, which jumped from $6,877.62 a month before the halving to $8,821 during the event. Despite extreme market volatility, the price kept increasing and reached $49,504 on May 11th, 2021.
The pattern seems to repeat post-halving, with the most substantial growth occurring after the event. However, around 12 to 17 months later, the value drops significantly but still remains higher than before the halving. However, the future impact of halving on Bitcoin’s price is uncertain.
Understanding how Bitcoin halving works requires a peek under the hood of the network’s underlying blockchain software. This software determines the pace at which new Bitcoins are created. Computers in the network compete to verify transactions (a process known as ‘mining’) and are rewarded with new Bitcoins for their efforts. Transactions are verified in groups, known as ‘blocks,’ and the reward for miners is halved every 210,000 blocks.
Reasons Behind Bitcoin Halving
You might be wondering, why does Bitcoin halve? This mechanism is rooted in its software design, created by an enigmatic person or group known as ‘Satoshi Nakamoto.’ While Satoshi’s reasons for implementing halvings are not explicitly stated, some speculate it was designed to incentivize people to join the network and mine new blocks. As the network
expanded, each coin’s value was expected to increase, thereby justifying the halving of block rewards.
Another theory suggests that the halving process was designed to introduce deflationary measures into Bitcoin. This means the number of new coins rewarded per block is predetermined, protecting Bitcoin from the risk of devaluation due to overprinting, as seen in fiat monetary systems.
However, Bitcoin’s design is not without criticism. Some argue that it encourages users to hoard coins hoping for value appreciation over time, potentially fueling boom and bust cycles. Others have likened Bitcoin to a pyramid (Ponzi) scheme, stating that its design rewards early users disproportionately.
Trading Bitcoin Halving
If customers are interested in trading the Bitcoin halving, there are two main strategies. One, you could speculate on the cryptocurrency’s price via derivatives such as Contracts for Difference (CFDs). Alternatively, you could purchase the coins directly through a crypto exchange.
So, why should customers trade with derivatives like CFDs? One of the significant advantages is that users don’t take ownership of the actual coins. This means they can trade without needing a crypto exchange account or wallet and be set up and ready to trade in mere minutes. Users can also position themselves to benefit from Bitcoin’s value whether it rises or falls. Customers also can leverage their investment by placing a small deposit, known as a margin, to gain access to a larger market exposure.
The Process of Minting 21 Million Bitcoin
The Bitcoin ecosystem is based on a strict rule that caps the total Bitcoin count at 21 million.
This isn’t a guideline, it’s a firm boundary. Once that limit is reached, the creation of new
Bitcoins comes to a halt. But the Bitcoin network doesn’t just pack up and call it a day.
You might ask, “Without the reward of fresh bitcoins, what’s the point for miners to keep the wheels turning?” This is where transaction fees steal the spotlight. Even though miners won’t be rewarded with new Bitcoins, they’ll still reap the benefits of fees paid by users conducting transactions. This becomes their new motivation to keep the system up and running.
It is believed that the last Bitcoin will be minted in 2140. That gives us over a hundred years to wrap our heads around this shift. But even so, it’s a fascinating prospect to consider.
Bitcoin halving is a fundamental event in the cryptocurrency world that could significantly impact Bitcoin’s value. However, the potential benefits and risks of trading during such an event should be carefully evaluated.
