Halving Crypto Currencies
Recently, more and more information has appeared that after halving the cryptocurrency is growing in price, however, given the fact that not everyone clearly understands the essence of this process, you should familiarize yourself with it in more detail.
A natural question may arise – why do we need halving at all?
This instrument is primarily used to control monetary inflation. The main advantage of bitcoin over fiat money is that the number of coins is initially known, while traditional money, if necessary, can be printed indefinitely. The total number of coins is 21 million, with 87% mined so far.
What is halving
Viktor Dorokhov, the expert of the Digital Economy program at the IMEB RUDN University, explains that not all cryptocurrencies are deflationary in their economic model. But the very first cryptocurrency in the world – Bitcoin – is just that. This is possible through halving.
The program code of the main cryptocurrency itself contains a mechanism according to which the reward is reduced every 210 thousand blocks added to the network, that is, confirmed transactions. Thus, it turns out that halving occurs every 4 years. At the same time, the maximum possible emission of Bitcoin is limited to 21 million, and the last coin will be mined in 2140.
Of course, halving is an extremely effective mechanism for a deflationary economy, therefore, for maintaining and increasing the value of the underlying asset: despite the high volatility, since its inception and the generation of the first block in 2009, Bitcoin only grew literally from zero to more than $ 61.7 thousand. in the moment.
Why do you need halving?
Halving is a system-planned decrease in profitability for the production of a new block. This feature helps to reduce coin inflation that would be caused by excessive mining, as explained by Martin Petkov, an analyst at Storm Gain, a platform for trading, buying, and storing cryptocurrency. Halving is usually accompanied by an increase in the value of the cryptocurrency, so traders and investors keep track of the date of the alleged event for purchases. So, the Bitcoin halving held on May 11, 2020, reduced the reward for the mined block from 12.5 BTC to 6.25 BTC, after which the price of the coin increased from $ 9 thousand to $ 30 thousand by the end of the year.
Each network has its own rules about the period of decline in profitability. For example, in Bitcoin, halving occurs every 210,000 blocks, and the next one is expected in May 2024, as mentioned above.
Halving bitcoin
As for the frequency of halving bitcoin, the code of the cryptocurrency states that every 210 thousand blocks the reward will be halved.
Considering the fact that it takes about ten minutes to generate one block, halving occurs once every four years, and the last, the third halving in the history of bitcoin, took place in May 2020. It is worth noting that at the time of the first halving in 2012, the price of bitcoin was $ 12, while during the second and third halving, it reached $ 650 and $ 8,700, respectively.
The fact that the generation of bitcoin is halved, and the demand remains at the same level, allows us to expect that the price of the cryptocurrency should increase. Hoping for another native after the halving, many seek to make money on this, but the rate is growing solely because of this belief, and not at all because of real demand.
Bitcoin mining and cost forecast
Bitcoin halving – halving the reward for a block, occurs every 4 years, to be more precise, every 210,000 blocks, as Sergey Arestov, a co-founder of BitCluster, explains.
Bitcoin has already gone through 3 halvings in its history.
Before halving in 2012, miners received 50 BTC per block mined, after which the reward was reduced to 25 BTC. After halving in 2016, the reward dropped to 12.5 BTC. On May 11, 2020, the issue per mined block was 6.25 BTC + transaction fee. Now it is about 0.75 BTC
Since bitcoin is a deflationary payment system, and less and less of it is mined every day, its value is growing higher and higher. In 2140, the last bitcoin remains will be obtained. But you can continue to work for a reward from transactions – transaction fee.
According to the creator’s idea, by this time the whole planet will use bitcoin, and 1 bitcoin can cost more than a billion dollars, and the reward for the commission in the block will be significant.
Therefore, miners will continue to solve the mathematical problem of choosing the correct hash in order to close the block of transactions and receive their reward. Thus, miners will chill in a fierce struggle for the mined block.
Where to watch when the next halving
The expected date of the next halving is May 5, 2024, as noted by Victor Dorokhov, expert of the Digital Economy program at the IMEB RUDN University
- Check out when the next halving is available here: academy.binance.com.
- You can also follow the countdown on one of the most popular cryptocurrency tracker resources, Digitalcoinprice.
- The most convenient site with a countdown to the new halving, according to Martin Petkov, is Coingecko. All coins are available on it, between which you can quickly switch. For example, changing the end of the bitcoin_halving line to bch_halving or zcash_halving.