Bitcoin halving is a phenomenon that occurs every four years, reducing the block mining reward by half. To understand this concept, we need information on how Bitcoin is mined and its impacts. This technical event is significant for many investors, traders, and cryptocurrency enthusiasts, especially as it sets the stage for the emergence of a bull market.
What is Bitcoin Halving?
Bitcoin halving, meaning “halving” in the Bitcoin context, refers to a technical phenomenon that is pre-programmed into the digital currency’s protocol. This event aims to cut the miners’ rewards in half, as these individuals receive a reward for each block they mine from the blockchain network, and this event will reduce their rewards to half.
This happens when 210,000 blocks (as declared by the blockchain developers for reducing the digital currency rate) have been formed, approximately every four years. Indeed, with each halving, the number of Bitcoins produced every 10 minutes decreases by 50%, and we will witness its significant effects on the price of the king of digital currencies. The next halving is expected in April 2024, which is a crucial factor for cryptocurrency market analysts, as it could significantly influence Bitcoin’s price increase.
To precisely understand how this event occurs, we must grasp the method of mining this currency.
The Concept of Blocks and Their Rewards
We mentioned that the technical event occurs when the mining reward for each block is halved. Now, what is meant by a block and the mining of this digital currency?
The concept and term “block” refer to a space where network transactions are stored and maintained. The mining of these blocks is done by devices that provide considerable rewards to their owners, the miners.
What About Miners?
I mentioned miners and remembered that I once wanted to join those who deal with the technical aspects of Bitcoin. Honestly, my main motivation was the very high income and the extraordinary rewards dedicated to this activity, which I really needed.
I talked to people who intended to keep a device in a rented apartment or suite, whose job was to mine Bitcoin! Indeed, it couldn’t get easier to access substantial money and profits; the rent in comparison to the profits from this activity was negligible. The device did its job, and the money kept my account charged. What more could I want?! Of course, at that time, I hadn’t even heard of Bitcoin halving.
Now, if you’re waiting to hear how much I earned from this process, don’t hold your breath and keep reading because, unfortunately, I never managed to carry it out and missed out on the rewards. The reason for that will be saved for another time!
What Do Miners Do?
Miners are individuals who put the processing power of their devices at the disposal of the blockchain network. These machines, by solving very complex mathematical problems, take on the responsibility of recording blocks that are formed with new transactions, adding them to the ledger, i.e., the blockchain, and thus forming the blockchain chain.
Mining, the process we’ve described, carried out by miners, must have incentives for these individuals to continue and meet existing needs. These incentives are naturally defined as financial gains, consisting of transaction fees and mining rewards.
Transaction senders voluntarily make the fee payments, and rewards occur by granting BTC to the miners.
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How Does the Blockchain Network Work?
Digital currencies, including the foremost among them, Bitcoin, base their operations on a special network called the blockchain. This network encompasses a range of computers known as nodes. These nodes are responsible for maintaining, storing, and keeping track of transaction data and their history. These important technical parts also bear another responsibility: verifying or rejecting transactions that form on the network.
Nodes and Bitcoin Halving
For nodes to be able to manage their tasks, they must examine and evaluate various aspects to ensure the accuracy and validity of each transaction. They must independently confirm each of these digital transactions, which requires that all transactions within each block be verified. In this way, every new transaction that occurs is also added to the block and distributed across the nodes. As each new node is added to the network, the security and stability of the network also increase.
The Process of Bitcoin Halving
With the inception of Bitcoin and the mining of its first units, miners were rewarded with 50 BTC for each block. The amount of reward given in subsequent periods was as follows:
- On November 28, 2012, 25 of these currencies were allocated to these individuals.
- On July 9, 2016, miners received 12.5 of the currency.
- On May 11, 2020, the reward reached 6.25 BTC.
Based on the prevailing trend in past periods, it is likely that in the next Bitcoin halving, which is scheduled for April 2024, the block rewards will be set to 3.125 Bitcoins.
I don’t know about you, but I have promised myself that by that date, with the investments I have made beforehand, I will reach a condition where I can increase my assets several times over and benefit from this exceptional opportunity.
Effects of Bitcoin Halving
The occurrence of this event will undoubtedly have various impacts on financial markets, especially cryptocurrencies, which we will try to address:
Inflationary Effects: One of the goals of halving can be seen as preventing the occurrence of BTC inflation or combating its growth, which it does by reducing the amount of rewards and maintaining its scarcities. Although this measure cannot counteract the inflationary effects and concerns of fiat currencies that users of this cryptocurrency face.
Impact on Demand: With the reduction in production and consequently the supply of BTC, it is natural for the demand for it to increase, a condition that always occurs after this event for Bitcoin.
Investment Effects: The creation of this digital currency initially took place to define a new payment method that would simplify transactions by eliminating intermediaries and central oversight. However, it soon became clear that this new phenomenon had a high potential for profit and extraordinary income generation, i.e., a feature that investors love. Thus, they entered this space and created a range of growing and increasing demand for this currency.
As the time for halving approaches, clear signs of asset price increases and substantial profits become apparent, and the time for massive investment maneuvers also arrives.
Conclusion
Every four years, when the number of blocks created in the global blockchain network reaches 210,000, a technical phenomenon known as Bitcoin halving occurs, which is fully anticipated and aims to reduce the miners’ rewards to half of the usual amount. This event leads to a significant increase in the value and price of BTC and occurs with the purpose of reducing inflation caused by its production. The nearest Halving date will be in April 2024.
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By David Taha