In a little less than a year from today, another round of Bitcoin halving will occur. This will be the third halving of Bitcoin since it was created. Bitcoin halving occurs at approximately 4 years intervals. The last halving was experienced in the middle of 2016, and the next one will be happening sometime in May 2020.
Bitcoin halving is a deliberate protocol that was introduced from the onset by Satoshi Nakamoto to ensure that cryptocurrency does not go into indiscriminate production and become inflationary. Halving is a way by which the number of Bitcoin that is mined daily is checked by controlling the block rewards earned by miners who maintain the network through computational exercises that verify transactions.
In the beginning, the block reward earned for every mined block was 50 BTC. At the first halving in 2012, mining difficulty increased and the block rewards was halved to 25 BTC. In 2016, when the second halving happened, block rewards became 12.5 BTC and so it has remained until the time of writing. The next halving which will happened in about one year from now will see block rewards reduced to 6.25 BTC, and the cycle will continue until the last of the 21 million Bitcoins has been mined. This is expected to happen around 2140, with more than 98% mined by 2030.
Bitcoin halving automatically implies an increase in mining difficulty, since the amount of Bitcoins produced per time is reduced. Mining becomes more competitive and less lucrative in terms of the number of Bitcoins earned. This causes miners to diversify their sources of earning or receiving Bitcoins and the ripple effect spreads across the entire cryptocurrency marketplace.
By halving, the number of new Bitcoins that enter into the market reduces by 50%. This is a huge value when the economic effect of supply and demand is being considered. This situation gives rise to increased scarcity, which in the end plays a role in the rising price of Bitcoin.
In the previous cycles, the effects of halving have shown up in different ways. In the second halving, Bitcoin price made some significant upward movement several months before the event occured, and barely changed in price immediately afterwards. Most analysts believe that traders and investors sentiments kicked-in in anticipation of the event. Although months after, the biggest Bitcoin rally ever was experienced with saw the cryptocurrency hit its highest price till date.
As the imminent halving approaches, participants in the ecosystem are already preparing and adjusting themselves for what could happen. Miners who know that rewards will reduce are using other avenues to accumulate Bitcoin. Opportunities as provided by platforms like CryptoFish are most cherished at this time allowing you to buy bitcoin with debit or credit card.
Considering previous behaviour, investors are already taking bullish positions and building up their portfolios ahead of halving. There have been predictions of even higher targets for the leading cryptocurrency beyond its previous high of almost $20,000.
Halving is primarily designed to check inflation and avoid the possibility of “over-minting” of the currency, a challenge that is faced by fiat systems of today.
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