Things To Note About Bitcoin Halving
Things to Note About Bitcoin Halving
What if I told you that there will only ever be 21 million Bitcoins in existence? This is the reason why Bitcoin is becoming digital gold: the supply is limited. There will never be another bitcoin, and there will never be another one less.
All of this is possible because of a significant event known as Bitcoin Halving, which occurs once every four years.
Bitcoin Halving
The Bitcoin halving, also known as "the halvening," is an event in which the total supply of Bitcoin is cut in half. Unlike other cryptocurrencies, Bitcoin uses a proprietary process to accomplish this.
It is thanks to miners who use expensive hardware (such as ASIC miners) to solve complex mathematical solutions that link transaction blocks together that bitcoins are able to circulate in the marketplace. Each block of transactions processed by Bitcoin miners results in the payment of a "block reward," which is in addition to any transaction fees. As a result, when the Bitcoin halving occurs, the block reward earned by the miners is reduced by half.
But why would you do that? This can be traced back to Satoshi Nakamoto, the creator of Bitcoin, and his view on digital scarcity, which is based on supply and demand theory. Nakamoto believes that by increasing the scarcity of Bitcoin, the value of the cryptocurrency will rise.
This method of creating scarcity contrasts sharply with the way fiat currencies operate, in which the federal government controls inflation through fiscal and monetary policies, such as determining the interest rate on loans and the amount of money that should be printed, respectively. Fiat currencies, such as the US dollar, are inflationary in the long run, whereas Bitcoin, thanks to the Bitcoin halving, is the polar opposite; it is guaranteed to be deflationary in the long run.
What is the process by which Bitcoin is halved?
It is necessary to halve the number of bitcoins mined every 210,000 blocks, which occurs approximately every four years. Because blockchain technology is decentralized, there is no central authority that determines the date of a halving. This is in direct conflict with the decentralized nature of blockchain technology. Bitcoin's protocol is already set up in such a way that all miners agree to follow the rules as soon as they are implemented.
Until each block reward reaches the smallest possible unit of Bitcoin, which is close to 0.00000001 BTC, the halvening process will be repeated. According to the current Bitcoin mining statistics, approximately 18.7 million Bitcoins have been mined and are currently in circulation in the cryptocurrency market (though many millions are irretrievably lost). This equates to approximately 89 percent of the total supply of Bitcoin in circulation.
In other words, there isn't a lot of new bitcoin waiting to be mined, which is all the more reason for Bitcoin Halving to take place: it reduces the number of block rewards earned by miners, causing the entire mining process to become more time-consuming.
Is the Bitcoin halving a good or a bad thing?
The Bitcoin halving occurs once every four years, similar to the Olympics, and is thus a highly anticipated event—the Bitcoin Block Reward Halving Countdown website is currently counting down to the next halvening of Bitcoin.
Each and every one of the previous Bitcoin halving events has been met with enthusiasm by both miners and Bitcoin investors, with the value of the coin skyrocketing after each halving event.
As a result, even though the supply of Bitcoins has been halved, miners will still be incentivized to mine for more because the value of Bitcoin has increased as a result of the halving.
The halvening has some disadvantages, despite the fact that it appears to be extremely profitable. When halving events are approaching, miners make extensive preparations. They spend large sums of money (tens of thousands of dollars in some cases) to purchase the most powerful mining hardware available on the market. This is due to the fact that, with each halving, mining for a Bitcoin becomes more difficult and time consuming, necessitating the use of the most advanced mining tools in order for miners to continue their work.
Because of the halving of block rewards, some miners may decide to discontinue mining entirely due to the high computational and electrical costs associated with mining.
Because of this, as more Bitcoin Halvings occur, Bitcoin mining will become a more difficult task to complete.
In Conclusion
The halving of the bitcoin supply is a significant event that generates a great deal of excitement in the cryptocurrency community. Bitcoin's value increases dramatically after each halving, resulting in a win-win situation for all parties involved. The very existence of such an event demonstrates that it is possible to create a scarce commodity in the digital world through the use of blockchain technology, which has the potential to alter our perception of and use of money in the real world.
