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Bitcoin Halving 2024 - The Halvening!

On the Bitcoin blockchain, a "block" is a file containing 1 megabyte (MB) of transaction records. By employing specialized hardware to solve a challenging mathematical problem and generating a random 64-character output known as a "hash," "miners" compete to add the next block, locking the block so it cannot be modified. Miners earn Bitcoin by completing these blocks.

What's the process behind the Bitcoin halving cycle? When the coin was first launched, miners received 50 BTC every block. In this way, it was possible to lure early users into mining the network before it was clear how effective it would be. For every 210,000 blocks mined, or roughly every four years, the rate at which new Bitcoin is created reduces by half.

According to the history of Bitcoin halving dates, the most recent three halvings took place in 2012, 2016, and 2020. The first Bitcoin split, also known as a halving, took place in 2012 when the mining reward for a block was decreased from 50 to 25 BTC.

Since the 2016 incentive halving event, which cut rewards to 12.5 BTC for each block mined, each new block will only produce 6.25 BTC as on May 11, 2020. The second Bitcoin halving is anticipated to occur in April 2024, and the scheme will remain in place until all of the cryptocurrency is mined in about the year 2140.

Bitcoin halving is a crucial method for regulating the supply of new Bitcoin entering circulation and happens as part of the protocol's design. The main causes of Bitcoin's price halving are:

Limit and Regulate Supply

The person or group of persons who designed Bitcoin, known as Satoshi Nakamoto, wished to produce a digital currency with a limited and controlled quantity. The rate at which new Bitcoin is created is decreased by halving the mining rewards. Bitcoin offers a good value proposition as a deflationary asset due to its increasing scarcity over time.

Prevent inflation

The Bitcoin price halving helps to keep the Bitcoin ecosystem's unsustainable inflation under control. By reducing the block reward, the rate at which new Bitcoin enters the market is slowed. The long-term stability and value of the coin are intended to be maintained through this limited issuance procedure.

Economics and market factors

The halving event has an impact on the market as a whole as well as Bitcoin miners. Because of the changes required for miners to be profitable with a reduced block reward, there is more competition, which pushes out less productive miners. This can therefore have an effect on the network's general security and decentralization.

Price Increase

In the past, halving events have frequently been connected to increases in the price of bitcoin. The anticipation of lower supply and more demand has led to an upbeat market sentiment and likely price increases. However, it is important to keep in mind that past results do not guarantee future outcomes and that factors other than Bitcoin price halving occurrences affect it.

When examining the post-halving booms in Bitcoin, other factors should be taken into account:

  • more press coverage on Bitcoin and other cryptocurrencies.

  • a curiosity with the privacy of the digital asset.

  • a steady rise in the number of real-world applications for the money.

History [hopefully repeats itself]

The first halving occurred on November 28, 2012, when BTC was worth approximately $12; a year later, it was worth nearly $1,000. Bitcoin's price fell to $670 on July 9, 2016, after the second halving, but climbed to $2,550 by July 2017. In December 2017, Bitcoin also surpassed its previous record high, which was at $19,700. At the time of the most recent halving in May 2020, the price of bitcoin was $8,787. By November 2021, it had reached an all-time high of about $69,000.

Besides the price, what are the other implications?

The halving's larger effects include a decrease in the amount of money that miners can earn by adding new transactions to the blockchain and a reduction in the payout for mining Bitcoin. The amount of fresh Bitcoin entering circulation is determined by miner payouts.

In turn, halving these payments lowers the flow of new Bitcoin, putting the laws of supply and demand into play. Demand varies as supply declines, causing price fluctuations.

The event of the halving has also decreased the rate of inflation for bitcoin. In the world of cryptocurrencies, inflation has to do with adding new coins to the existing supply. However, the halving is a key component in the architecture of Bitcoin because it is intended to be a deflationary currency.

After halving in 2012, Bitcoin's inflation rate fell to 12% before rising to 4-5% in 2016. It was 50% in 2011. At the moment, Bitcoin inflation is 1.74%. Simply said, the value of Bitcoin rises after each halving. Every time there has been a halving, Bitcoin has historically seen a bull run. Demand increases as supply declines, driving up the price. However, this upward tendency typically takes some time to manifest.

The price of Bitcoin would have to drastically increase for miners to obtain half as many coins due to the high cost of electricity necessary to power the computers that solve the mathematical riddles. If the price does not increase at the same rate as the incentive decreases, it will be difficult for miners to remain profitable.

A new technique that can produce more hashes per second while using less energy and having fewer overheads will be required since miners will need to be as efficient as possible.

Additionally, when additional nations participate in Bitcoin, the price may be impacted by their economy. More importantly, because of the greater publicity it is presently receiving, the price of Bitcoin is probably going to grow. As more establishments, small enterprises, and retailers adopt Bitcoin, the number of transactions will only rise.

What would happen if a sizable portion of miners abruptly stopped mining Bitcoin?

The hash rate and various other elements of the Bitcoin network would be immediately impacted if a sizable number of miners abruptly stopped mining Bitcoin. The amount of computing power devoted to Bitcoin mining is indicated by the hash rate. If more miners stopped mining, the network's overall hash rate would decrease, making block formation times longer and lowering network security.

For instance, if several miners choose to leave at once, the network may temporarily bottleneck as users move to chains with higher throughput, making it simpler for malicious users to seize control of some portions of the network.

However, historical data suggests that this reaction is not triggered when events are halved. Bitcoin's hash rate decreased after the first halving in 2012, from December 2012 to mid-February 2013. Following then, mining profitability as well as hash rate both rose. Because of this, halving will ultimately benefit both miners and the network as a whole.

Similar circumstances emerged with Bitcoin's second halving, however the positive effects took time to materialize. Although the hash rate was increasing steadily, mining profitability did not increase again for almost a year following the date of the halving. The following event's pattern could see a long-term drop in mining profitability.

The Next Halvening

The next halving will take place after mining the 840,000th block since the previous halving, while the precise date is unknown. The next halving is anticipated to take place around April 2024, bringing the mining incentive for each block down to 3.125 BTC. Given that new Bitcoin are now being created roughly every 10 minutes. Will history repeat itself with respect to price? We’ll see.

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