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Among the various factors that make Bitcoin so famous and innovative, its characteristic as a scarce digital asset stands out. For every 210,000 new blocks, 50BTC are generated, however, every 4 years this value halves in a phenomenon known as halving that affects the price, the mining process and the Bitcoin trading.
One example of this is the growing wave of speculation and in forecasts that the value of Bitcoin may reach the $ 14,000 level during the period close to halving.
Continue reading and understand more about this phenomenon long awaited by Bitcoin users.
What is the halving?
Every four years, a phenomenon known as halving is responsible for “regulating” the generation of Bitcoins, maintaining the scarcity of the platform, which will not issue new currencies
when it reaches the number of 21 million BTC units in circulation. This is part of a Bitcoin system protocol that makes it difficult to level proof-of-work problems so that coins are mined in a way that corresponds to a predictable and limited metric.
Recalling the mining process, it is known that miners receive a reward for each valid block mined. In the halving phenomenon, the rewards of mining are split in half. To illustrate, the first halving took place in 2012, when the reward dropped from 50 to 25 Bitcoins per block mined. In 2016, the prize went from 25 to 12.5 Bitcoins.
All this so that, according to Satoshi Nakamoto’s planning, the last Bitcoins are mined in 2140.
What are the impacts of halving?
Although it is not a rule, the market may tend to price the reduction in half of the generation of currencies. After all, due to the market logic of demand and supply, there will be fewer currencies available to an increasing number of buyers, which may cause fluctuations, sometimes sudden, in the price of Bitcoin, behavior observed in the last two halvings.
Another factor is directly related to the issue of mining. Mining cryptocurrencies is an expensive activity, which requires a lot of computational power and a high expenditure of energy. Although there are currently “mining farms”, the cost remains at an unaffordable level. With halving, the miners’ reward is also reduced, which may lead to a decrease in mining activity, as the value of the reward is not always enough to cover the costs of maintaining the mining activity and still make a profit from it.
How does halving affect investors?
An investor who uses Bitcoin in their daily lives or for transactions around the globe does not suffer the direct consequences of halving and can proceed normally with their operations using Bitcoin.
However, for speculators who trade for profit, the scenario is a little different. The relationship between supply and demand caused by halving tends to have great weight in the operations of these traders. Thinking again in terms of the market, there is price stability when supply is proportional to demand. Similarly, prices drop when demand is stable, but supply continues to grow.
In the case of halving, what is weighing is the disproportion between supply and demand caused by it, since demand continues to grow, but supply now becomes lower, causing prices to rise.
Do you have any hints as to what the consequences of 2020 halving will be? Share with us.
Tune in to the Binance Academy countdown to Halving Bitcoin 2020.