Bitcoin halving is one of the most anticipated crypto events. It is one of the ways through which Bitcoin ensures stability. It helps avoid flooding of the market while also ensures uninterrupted flow.There is a lot to understand about Bitcoin halving. Follow this article to know the impacts of the halving on the crypto. You’ll also know how mining works and the sustainability of Bitcoin halving.
The best way to understand the importance of halving is first to know how Bitcoin comes into existence. Bitcoin is mined using powerful machines. These high-energy consuming machines come with special software for the miners. Miners work such that they compete in solving complex computational math problems. The one who solves the puzzle first gets a reward. Once a puzzle is solved, another harder one comes up.
Bitcoin uses a Proof of work protocol to verify transactions. The systems imply that the miner must show energy and time spent solving the puzzle. They must verify more than 1MB of transactions for the block to count. The block then becomes a node that joins the Bitcoin system. Still, before joining the system, the other traders must verify it. They verify the transactions, which are then added to the blocks to become a blockchain. This ensures the safety of Bitcoin transactions. It also limits any cases of fraud, like double posting. Every new coin comes with a reward, as stipulated by Bitcoin. The rate of mining varies from the machines to the software. The transactions also vary depending on the difficulty of the puzzle. The earnings, however, are systemic. The current reward for every block is 12.5BTC. The reward changes after every four years through halving. Which bring us to the next main topic of Bitcoin halving;
Bitcoin halving is where the reward for mining is reduced by 50%. Miners receive half of what they have been receiving upon the successful completion of a transaction. The halving occurs after every 210,000 blocks. This happens to be roughly four years. Bitcoin has a maximum supply of 21,000,000 blocks. It means the halving will run until 2140. Already there are 18,361,438 bitcoins in supply. Bitcoin mining started in 2009 with the rewards at 50BTC. It reduced to 25 in the first halving in 2012. The next halving happened in 2016, with the value getting to 12.5BTC. The latest halving occurred on 11th May 2020 with the rewards at 6.5BTC.
The reduction of rewards reduces the rate of mining. Once the rate of mining is low with the same demand, the value goes up. It is a sure way to manage inflation within the Bitcoin ecosystem. Bitcoin takes pride in the scarcity. It is one of the reasons for the maintained value. The 2020 halving looks to keep the Bitcoin inflation around 1.8%. These are almost the same levels of gold at 1.45% inflation rate.
Halving in the past years has come along with price surges. The first halving prompted the rise of the coin from $12 to around $1150. The first halving did not have as many participants as the coin was picking up. Different from July 2016, when users were anticipating the event. The prices started going up almost a month before the halving.The prices hit $1000 in early 2017. Bitcoin reached one of its highest peaks of $20,000 by the end of the year. The prices, however, after some time, reduced to $3,000 by early 2019.
These changes show that the effects of halving take some time to reflect. It means the impact of the 2020 halving will take time to materialize. Still, the coin is already on a rising trend. The coin had earlier traded in the lows of $3k. This was a reaction to a slow economy from the coronavirus pandemic. It later recovered to going past the resistance level of $10. Bitcoin is at the moment been trading at around $13k. The coin has gained from the increased trust following the pandemic. Most people are looking for digital assets as the best alternatives. The pandemic has also led to the decline of the dollar. A weaker dollar leads to an increasing value of Bitcoin.Still, several experts have given their predictions on the possible effects of the 2020 Bitcoin halving.
Experts Predictions on Bitcoin Halving
Most of the Bitcoin experts have given a bullish prediction for the Bitcoin halving. They are mostly relying on the previous halving performance and current run. One of the notable experts is American investor, Anthony Pompliano. He believes Bitcoin will experience a bullish run from the halving. He is also looking into the fiscal stimulus programs from the government. He predicts the coin will hit $533,431 by August 2021. He claims that drawing from the past scenarios; there is a higher chance of the coin rising.
Jake Yocom-Piat, the Decred co-founder, also believes in a positive effect from the halving. In a correspondent, he believes the miners will engineer the rise. While the reward halves, the cost of mining remains the same. The miners will, therefore, increase Bitcoin’s selling price. He expects the value of Bitcoin to double, without exact figures. He also expects the coin to stabilize later on. While there seems to be a general positive look, there are other bearish views. One of the bearish movement propagators is Peter Schiff. The American investor prepares the expectant crowds for a possible disappointment. As an economist, he understands a crowded consensus trade has several possibilities.
Bitcoin halving is one of the most important events in the crypto world. It is the stabilizing factor behind the coin. It also ensures the security of the whole system. All the miners ratify transactions hence reduces any chance of irregularities. The only worry is when the halving ends, and there is no more reward. The best option seems to introduce transaction fees to reward the miners. That might increase the cost of using the coin. Still, there are several years to that point.