If you follow crypto news at all (or if you’re trying to put on a brave face in front of your colleagues or friends who are still talking about bitcoin), you’ve probably heard about the upcoming Bitcoin’s halving.
The closer we get to halving, the more one might think that a storm is brewing to lift the crypto world again in the coming months.
Let’s go over all the elements to understand this phenomenon a little better.
What is Bitcoin halving?
The term “halving” comes from the English language and literally means “halving” or “reduction by half”.
We’ll see below, but the use of this term in the cryptosphere refers to the halving of the reward that is given to bitcoin miners.
As a reminder, miners are responsible for validating the blocks, obtaining a reward in return, bitcoin.
4 more years to wait!
Halving occurs every 210,000 blocks mined, or about every four years. This has the effect of:
- to slow down the creation of new bitcoins,
- to progressively increase their rarity,
- and thus contribute to maintaining the value* of the
*Reminder: the number of bitcoins created is limited to 21 million units (depending on the protocol). Currently, about 18.7 million bitcoins have been mined and are in circulation, which means there are about 2.3 million left to be mined.
Now that the foundations are laid, let’s see what the news says.
Crypto prices rise with Bitcoin halving
By May 2020, it was the 3rd halving, resulting in a halving of the reward for Bitcoin miners (from 12.5 to 6.25 bitcoins per validated block).
With this? There is an increase in the value of the token and its rarity over time.
Also, since May 2020, the price of Bitcoin has risen dramatically, reaching its all-time high in April 2021 at nearly $65,000.
The halving phenomenon is therefore a major event and its repercussions are weighing on the crypto market and investors.
Bitcoin halving: One man’s happiness does not make another man happy
The gold miners
Let’s take the concrete case of gold miners who will gradually see themselves being rewarded less and less as gold resources diminish.
However, the extraction conditions are increasingly difficult and require more and more energy. And that doesn’t stop the price of gold from rising with scarcity.
Behind the scenes
The concept is the same for bitcoin.
Like all people born on February 29 who look forward to their birthday, bitcoin aficionados prepare for this event every 4 years. Like the grail, they are waiting:
- the halving of the reward given to miners (which focuses on validating blocks),
- To the decrease of bitcoins in circulation and the increase of its price
Conversely, minors find themselves in this complex position. While they receive fewer rewards, the demand for mining is increasingly demanding, competitive.
And the energy and resources required to validate a block are expensive.
Bitcoin halving and inflation: two realities impacting the crypto’s price
Upstream of this, a double reality emerges:
- On the one hand, halving the rewards given to miners -> – decreasing the number of new bitcoins entering the market with theincrease of the scarcity and the value of the price -> – risk of re-centralization of the networks.
- On the other hand, we have inflation: with the general and lasting increase in the prices of goods and services -> decrease in the value of money.
Yet the higher the inflation, the more it negatively impacts the economy and the value of assets, including crypto-currencies.
Conclusion
- Generally speaking, halving is generally welcomed by the crypto community, as it helps maintain the scarcity and value of Bitcoin and other crypto-currencies.
- By halving the reward to miners for validating blocks, halving limits the supply of new bitcoins entering the market, which can lead to an increase in their value.
- However, the impact on miners could have the opposite effect of re-centralizing exchanges as mining capacity and profitability will tend to decline.
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