Bitcoin Halving Day: Here’s why everyone’s hyped about it
You might’ve heard it whispered in circles of crypto enthusiasts or posted in tweets of crypto traders. Bitcoin Halving Day—what is it about? When Satoshi Nakamoto published their whitepaper in 2009, he made sure that the distribution of bitcoins will remain liberated from central control. Thus, the reward system through bitcoin mining is devised. For every block that is added to the blockchain, a certain number of bitcoins is given to the miner in return.
However, as time passes by and more miners pull up with their back hoes, more and more bitcoins are added to the circulation. If left on its own, this can lead to overproduction and eventually cause inflation. To prevent this from happening, the number of rewards is cut in half every four years. Thus, Bitcoin Halving Day is born.
Intro to Bitcoin
Bitcoin is the first digital currency to ever see the light of day. When it was born, it brought with it revolutionary blockchain technology and peer-to-peer sharing that are not governed by any form of central authority. It gives you full control of your money. All transactions are recorded in a public ledger that traces back to the very first transaction made with bitcoins.
New bitcoins are made and added to the circulation whenever a miner processes blocks of transactions together into a block and adds it to the chain. Since its creation, it’s already been decided that there can only be 21,000,000 bitcoins to be made. Right now about 18,000,000 bitcoins have been mined already and more are created with every new block that is created.
Effect of Bitcoin on the World
Cryptocurrency has forever changed the way people see money and transactions. In the current monetary system, banks and governments hold complete control over your money. They keep a centralized ledger where all transactions are recorded and hidden from the public’s eye.
With the emergence of Bitcoin and its decentralized ledger called the blockchain, control is given back to you. No middlemen participate in the process of verifying every transaction which means less costs. It’s also a lot faster than bank transfers that can take several business days to finish processing. Since P2P sharing erases the need for third parties to verify accounts, transactions with Bitcoin are done in a matter of minutes.
The blockchain also secures your money with the help of cryptography. Each block contains a hash from the block that came before it, thus creating a chain. With this process, basically all transactions ever made starting from the first bitcoin transaction is connected. If someone were to hack into it, they’ll have to go through each of the hundreds of thousands of blocks in the chain.
In a nutshell, bitcoin provides a modern alternative to the current monetary system. It’s fast, cheap, and secure.
Solving Modern World Problems
One of the problems fiat money has that bitcoin solves is inflation. In the present system, banks can print unlimited copies of bills. When the market becomes saturated with money, its value drops.
Nakamoto was ahead of the game when they included in the whitepaper that there can only be 21,000,000 bitcoins ever made. New bitcoins enter the market when miners add blocks to the chain and they are rewarded with bitcoins. Right now, the reward is 12.5 bitcoins per block. Whoever finishes the next hash gets the reward first.
Since mining is the most secure way of earning bitcoins, more and more people are jumping in with their high-end devices. This means that there are more and more bitcoins being made and added to the market. Just like overprinting money, if the production and distribution of bitcoin continues like this, soon enough the limit will be reached and miners will have no more bitcoin incentives.
This is where bitcoin halving enters the scene. It ensures that inflation is kept in check and no overproduction of bitcoin ever happens.
Bitcoin Halving: Why it must be done
What happens in bitcoin halving day
Bitcoin halving slows down the distribution of bitcoins by cutting the reward given to miners in half. Satoshi Nakamoto included in the protocol that for every 210,000th block added to the blockchain, the incentive received by miners are reduced. This ensures that the market won’t be flooded by bitcoins which would have resulted in the devaluation of the digital coin.
Mining is the most profitable way of earning bitcoins and that’s why more and more people are joining the hype with their specialized machines and extensive knowledge on hashing. This means that more and more bitcoins are mined and added to the circulation. If left unchecked, there will be a continuous surge of supply and as a result, bitcoin’s price will drop.
During its early years, the initial reward for miners was 50 BTC. In 2012, the first halving event happened and the reward for the 210,001th block was reduced to 25 BTC. While it’s still a relatively huge amount, it’s ensured that there’s a less number of newly minted bitcoin added to those already circulating in the market.
What’s also included in bitcoin’s protocol is the maximum number of bitcoin can only be mined. The fixed supply of bitcoin sits at 21,000,000 and right now, roughly 18,000,000 have been mined. Bitcoin halving ensures that the supply of bitcoin will not run out immediately with more miners joining the fray. With less rewards given to them, less bitcoins are added to the circulation, preventing the drop of bitcoin’s value.
Below you’ll see the table for every halving event that has happened and will happen in the future:
Since 2009, two halving events have already taken place. The first one in 2012 saw the reward cut to 25 BTC. After four years, the second halving event happened in 2016. The reward received by the person who added block number 420,001 to the blockchain was reduced to 12.5 BTC.
Currently, the reward for miners is 12.5 BTC. The next bitcoin halving day is expected to happen this coming May 12, 2020. After the 630,000th block is added, the reward for the next block will be reduced to 6.25 BTC.
Rewards for miners will continue to be halved every four years until all 21,000,000 BTC have been mined. Fortunately for miners, this won’t happen until the next hundred or so years, specifically in the year 2140 when 0 BTC is left to be mined.
Why the change?
So why does bitcoin need to be cut in half? The answer is simple. It follows the law of supply and demand.
Imagine if new bitcoins are continuously added to the circulation every time a miner verifies a block. It would be a never-ending stream of production and since there’s an abundant number of bitcoins in the market, its demand would drop. Soon enough, the purchasing power of the digital coin will drop as well and its value will go lower.
This is the problem in the present monetary system that bitcoin solves. In fiat currencies, central banks can print as much money they want and increase the flow of currencies in circulation. Since there is an unlimited source of money, the demand and value drops with every new printing. As a result, the inflation rate balloons.
On the other hand, bitcoin has a fixed number of supply that cannot be changed. There can only be 21,000,000 bitcoins in existence and once they are all mined, that’s all there is to it. Miners will have to rely on other incentives such as transaction fees as reward when they verify blocks.
In this sense, bitcoin is comparable to gold in the sense that it cannot be created again once all of it is mined. Its limited supply ensures that it is always scarce and its value is always kept in check.
In a nutshell, bitcoin halving is necessary because it keeps inflation in check and it ensures that there won’t be an oversaturation of bitcoin in the market, causing its value to drop.
The effects of bitcoin halving day
Miners are mainly the most affected ones after halving day occurs. And naturally so, since their ‘income’ is cut in half. Take into consideration the fact that they have to compete with every other miner in the network to get their reward, halving day really seems to be bad news for miners.
Both halving days in 2012 and 2016 saw a considerable drop in the number of miners who participate in the bitcoin network. After several months, the numbers managed to pick up and even doubled after the initial drops.
Effects in Price
So how does halving day affect the price of the world’s best digital coin? Does it increase or does it drop? What can you expect on this year’s halving day? Find all your answers here.
When bitcoin first halved in 2012, no drastic change was observed right away in regards to its price. It sat at $12 during the first halving in 2012. A year later, however, bitcoin’s price skyrocketed to a staggering price of $1,038, the highest price it reached during that time. It considerably dropped to $220 after a few months.
At the second halving day in 2016, people were anticipating the rise in price. So they bought more bitcoins and the span of one month before halving, bitcoin’s price climbed from $576 to $650. It just goes to show that there really is a hype towards this much anticipated event for bitcoin holders.Fortunately for all enthusiasts at that time, bitcoin’s price did increase. After 150 days, its price sat at $758.
All of that is nice and all but what’s most intriguing is bitcoin’s price after a year has passed. At the 2012 halving, it climbed to $1,038 with an increase percentage of 9,336.36%. A year after the 2016 halving, its price climbed to $2,526 with an increase percentage of 288.60%.
Check the table below for a quick overview of the effects of the two halving events:
There’s not much change in the subsequent days that followed the halving event. People are leaning more on the long-term effect, since based on the earlier instances, they are hoping that the bullish run will happen again after this year’s halving event.
Double the Excitement, Double the Hype
During bitcoin halving day, the reward given to miners for every block they add to the chain is cut in half. It’s a way to keep its inflation rate in check and to make sure that there won’t be an over influx of bitcoins circulating the market.
Since mining is one of if not the best way to earn bitcoins, more and more people are hopping into the mining train. Due to the reduction of rewards, miners are the most affected after the halving event takes place.
In terms of the effect on bitcoin’s price, past events have proved that it is bullish in the long run. People are optimistic about the halving event since it cuts down not just the reward, but also the supply in circulation, making its price appreciate in relation to the law of supply and demand.
This event happens roughly every 4 years. There’s a lot of room for the growing hype since there is historical data backing up people’s beliefs. And there is reason to believe that! It’s important to still keep in mind, however, that times change and the factors that affected the rise in price before may not be present in the future.
Four years is a long time. Since its conception, bitcoin has gone through various phases and has received mixed reactions from people. But no matter the negative reaction, it keeps proving itself as the future of money.
Words by: Leann Padilla