Bitcoin halving is one of the most important events in the Bitcoin community. There are many reasons behind its popularity, but one of the most discussed topics is how the Bitcoin halving affects the price of bitcoin. Throughout the history of Bitcoin, there have been 2 halvings that have been correlated with the Bitcoin price reaching new highs. If you are looking to make an investment decision based on the halving, it’s important for you to take into consideration some important points. Let’s start with a few basic definitions for those who may be relatively new to the space.
Basic Bitcoin/bitcoin definitions:
What is Bitcoin?
First of all, notice the capital letter. Bitcoin with capital letter “B” refers to the network itself - a protocol for a decentralized P2P exchange that creates consensus without needing a central authority to provide trust.
What is bitcoin?
When using bitcoin with lower case “b” we refer to the currency used for value transactions and issued as a reward in the proof-of-work mining process.
The Bitcoin Halving
What is Bitcoin Mining?
The Bitcoin network is operated by miners. These miners use computers (generally GPUs) to support, validate, and secure the network. Mining involves using these computers to solve complex hashing algorithms and process bitcoin transactions. The miners are rewarded with fees (paid in bitcoin) for this work performed. Whenever a new block is mined, a set reward is given to the miner that “mines” that specific block.
What is Bitcoin Halving?
Bitcoin halving is a mechanism of the Bitcoin protocol that reduces by half the reward given to bitcoin miners for mining a new block.
When is the Bitcoin Halving?
The Bitcoin Halving does not have a specific date, but it takes place every 210,000 blocks.
Let’s examine the Bitcoin halvings since the inception of Bitcoin.
- 2009: bitcoin mining rewards start at 50 bitcoin (BTC) per block
- November 28, 2012: The first Bitcoin halving takes place to reduce mining rewards to 25 BTC
- July 9, 2016: Second halving takes mining reward down to 12.5 BTC
- 2020: The third halving will see the reward fall to 6.25 BTC
A date can be estimated for each halving as the expected time to mine each bitcoin block is 10 minutes. It is estimated that the 3rd halving will take place on Saturday 11th of May, 2020.
Why is Bitcoin Halving important?
It is important to understand the following:
- The only way to create new bitcoin is by mining bitcoin.
- There is a maximum number of bitcoin that will ever be created - 21 Million.
By reducing the reward to the miners for mining a block in the Bitcoin network by 50%, the Bitcoin protocol is reducing by half the creation of bitcoin. This is the only mechanism of producing new bitcoin and as a result, the Bitcoin protocol is controlling the inflation in the bitcoin economy. Two of the positive outcomes for the bitcoin halving are that similar to gold, bitcoin could be considered as an international medium of exchange and store of value.
How does Bitcoin Halving will affect the bitcoin price?
This is by far the most popular question nowadays. In order to understand what could happen this time after the Bitcoin halving, we need to examine what happened after the last 2 halvings.
- Bitcoin launch to first halving: Price increases from $31.50 to $1178 (3700% increase)
- First halving to second halving: Price increases from $1178 to $19800 (1600% increase)
Only time will tell what will happen from the second halving to the third. Even though learning about the history of the bitcoin price through the last two halvings is important, it is advisable that you understand that nothing ensures that the bitcoin price behavior will repeat as in the last two halvings.
Bitcoin Halving - The mindset
Bitcoin halving is one of the most important parts of the Bitcoin protocol. Nobody could promise you that the price is going to increase by a certain percentage or that we will see new all-time highs (ATH) after the halving. That being said, it’s important to understand that the way the bitcoin protocol works to make bitcoin remain valuable through time. In addition, the bitcoin halving mechanism guarantees that unlike the fiat-currency which is naturally inflationary the bitcoin economy to be deflationary. These are fundamental characteristics that you need to have in mind when you think about Bitcoin.
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Until the next time!