With the prominence of Bitcoin, investors became more invested in mining activity. One of the most important events influencing Bitcoin is “Bitcoin Halving.” It is a pre-calculated event that hits the cryptocurrency market after every four years. This approach tends to preserve the Bitcoin’s shortage and influences inflation percentage, which ultimately impacts the market value of Bitcoin. This blog aims to provide detailed information on Bitcoin halving, including its meaning, historical background, effect on the cryptocurrency market, mining rewards, scams, and future predictions.
It is a decrease in the rewards Bitcoin miners earn for their work. Approximately every four years, Bitcoin is halved. Each one reduces the amount of Bitcoin miners’ block rewards by half, as the name implies. It causes Bitcoin to only distribute in half. Just 21 million will ever be produced, as per its founding rules, to begin with. With Bitcoin halving, the rate at which Bitcoin creates reduces to avoid more Bitcoin creation than there is demand for. The Bitcoin halving also helps to prevent inflation. Because they lower the number of new bitcoins the network creates, bitcoin halvings are significant for traders. Price increases could occur if demand is consistently high because there is a limited quantity of new coins. Even while this has already happened before and after other halvings, increasing the price of bitcoin, each halving has its own particular set of circumstances, and demand for bitcoin can fluctuate significantly.
Santoshi Nakamoto, the person who created Bitcoin on January 03, 2009, mined the first block known as a Genesis block. Initially, the Bitcoin reward was set to 50 BTC by him. Bitcoin held no monetary value, so no one invested much in mining. However, an unexpected increase was experienced in Bitcoin mining in 2011, where the value surpassed $0 to $1.
The first ever Bitcoin halving event occurred on November 28, 2012. At first, there was no visible change in the value of Bitcoin, but later, at the beginning of 2013, its value initiated to increase. The value of Bitcoin reached $1,100, known as a remarkable rise of all time in Bitcoin’s value.
The second Bitcoin halving event took place on July 09, 2016. Since there was no significant change in the value, but then in mid-June, Bitcoin made a comeback. However, the price also dropped shortly after the actual halving. There was a prompt transition in the value of Bitcoin that reached an all-time high at $19,700 on December 17. 2017.
The last Bitcoin halving event occurred on May 11, 2020, and there was no instant change in its price value. Dye to covid outbreak, a decrease in the price value of Bitcoin was seen in March. And then, by 2021, there was a significant rise in the price of Bitcoin, which was $69,000.
Bitcoin Halving Chart (Source: CoinWarz)
The Investor or Trader must be prepared before Bitcoin Halving to avoid potential risks. There are a few ways through which investors can do for the preparation:
It is essential that investors pre-plan their investment techniques. The strategic decision with a full-fledged plan can help them with the crypto investment. If the traders strategically work in this case, it will reduce the chances of potential risks encountered. The crypto market involves enormous fluctuation; hence the investors must prepare themselves by making strategic investment decisions for saving their assets.
When investors think about diversifying their cryptocurrency portfolio by purchasing alternative digital assets that support their goals, any potential losses in the Bitcoin market reduces if the investors diversify their portfolios.
Awareness is the foremost factor to consider for crypto and any subject. Investors shall not invest anywhere just like that; they should be aware of the consequences, market trends, and fluctuations before investing in any digital asset. Once the investors know, they will prepare their action plans more efficiently. It will help the investors to adjust and adapt to the changes that occur accordingly.
Bitcoin Halving occurs as a part of the protocol introduced since its inception and to reduce the rate at which new Bitcoin produces. Bitcoin halving affects several areas and factors, which include:
Shortage and Limited supplies
The inventor of Bitcoin wanted to create a cryptocurrency with a limited and managed supply. This protocol leads to halving Bitcoin, which cuts the mining return rewards to half and decreases the value a new Bitcoin generates. The new collection of Bitcoin entering the market is half as compared to the past few years. Bitcoin halving ensures a limited supply that controls the rising scarcity over time.
Bitcoin’s security solely depends on its security network and hash power. After Bitcoin halves, there is some reduction in the miner’s profitability, and it can cause the hash rate to decrease. The protocol established for Bitcoin is a saviour; hence, after Bitcoin halving, the block creation rate maintains consistency, ensuring the network’s security and the block creation rate improves.
Bitcoin halving has economic consequences for both miners and the marketplace. Potential miners discontinue the mining after the halving event. If the mining rewards reduce by half, miners would think before putting in the resources as paying for electricity, mining rigs, and hardware will cost them. It would reduce the miners’ profitability, creating a supply-demand market imbalance. Hence, the market economy will be affected.
As the mining rewards decrease to half, the new supply entering the market reduces the production of new Bitcoins. It leads the inflation rate to fall as it has evidently over the past few years after the Bitcoin halving event. Hence, Bitcoin’s halving keeps the coin secure and profitable in the long run effectively.
The rate of new Bitcoin supply will steadily decline as Bitcoin halvings continue until the mining of all 21 million Bitcoins. The final portion of Bitcoin is said to be mined by the year 2140.
The next halving will occur after mining the 840,000th block since the previous halving and the precise date are also released. The next halving is said to occur on April 26, 2024, bringing the mining incentive for each block down to 3.125 BTC.
Bitcoin Halving Countdown (Source: Coinwarz)
We hope that you have a clear understanding of Bitcoin Halving and the essential aspects associated with it. The Bitcoin halving is known to be the most important Bitcoin Halving event worldwide. An investor must take safe steps to ensure he does not encounter heavy losses. The Bitcoin price decreases to half after each halving event, which increases the mining difficulty rate because of the limited supplies of Bitcoin. Hence, be very careful and make informed choices on the same.
You must make informed choices such as good investment strategies and techniques, be aware of market trends, be adaptable to market changes, and diversify your portfolio.
The next Bitcoin Halving event will occur on April 26, 2024.
The supply of Bitcoin is limited, around 21 Million; hence, as per its in-built protocol, the halving event helps limit the creation of new Bitcoins, saving the Bitcoin from ultimately diminishing.