Hello Fintech enthusiasts, hope you are safe and sound. I have talked all the basics about Bitcoin and Cryptocurrencies in my last article in the Fintech series and briefly explained about Bitcoin mining. You must have heard lot of news about Bitcoin Block Reward halving which is going to take place in few days. So I decided to talk about Bitcoin halving today.
Bitcoin Block Reward System
As I explained in my previous article, Bitcoin is operating as a decentralized digital currency supported by a distributed ledger called blockchain. That means Bitcoin does not have a centralized third party to authorize its transactions. This authorization is done by independent network called miners. Miners will not be working so hard for free. They need to be compensated by the platform. To fulfill this requirement, Bitcoing platform created a system to compensate miners by rewarding them with newly minted Bitcoin.
What is Bitcoin Block Reward Halving?
At the very beginning of launching Bitcoin, the platform awarded 50 bitcoins for one block of transactions produced by miners. It takes approximately around 10 minted for one block to be produced. However the total number of bitcoins that can ever be in circulation is 21 million. That means the reward system cannot be the same forever.
Therefore the bitcoin rewarding system changes over time. After ever 210,000 blocks being produced the reward for the miners cut down by half. It roughly takes about four years for 210,000 blocks to be produced. The reward changes as follows.
- First 210,000 blocks produced – 50 bitcoins per block
- Second 210,000 blocks produced` – 25 bitcoing per block – 29th November 2012
- Third 210,000 blocks produced – 12.5 bitcoins per block – 10th July 2016
- Fourth 210,000 blocks produced – 6.25 bitcoins per block – 12th May 2020
Why this Halving mechanism in place?
You must be wondering why cutting down the reward over time and you probably must be thinking it’s going to discourage miners. Bitcoin was designed as a deflationary currency. That means the issuance of bitcoin reduces over time and as a result the value of it will be increasing over time. This is a simple demand and supply logic. The demand for bitcoin expected to increase over time, but the supply decreases. So the price or value of bitcoin expected increase. Works similar to a commodity like gold.
If you think about fiat currency like USD, they work the other way around. When more currency released to the economy by the central bank, the value of the currency drops resulting inflation. So the objective of halving is to ensure increase in value over time.
Increase in value of bitcoin in the past
As I explained above, there were two halvings took place in the past. After the first halving in November 2012, the price of bitcoin increased by 34% ($9.5 to #12.75) within four weeks. After the second halving, bitcoin went through a slight drop in price. However the price almost doubled within about eight months after halving and bitcoin recorded its all time high value ($20,000) in December 2017 which is after about 15 months of second halving.
So in general we saw a massive increase in price after the past two halving.
What will happen after third halving?
You might easily assume the value of bitcoin will jump up again after the third halving which is going to happen in few days. However the bitcoin specialists have demonstrated mix opinions.
The price may go up – Well some specialists predict that the price will go up by looking at past events and also by looking at the recent new signups over various bitocin exchanges around the world.
The price may go down – Some specialists predict a deduction in price by looking at various surveys done among investors. This is mainly because the build up being created over the past few months by many investors were collecting bitcoin. These collectors may sell to profit out from the halving which may eventually drag the price down with the selling pressure.
It might be a non-event – Some people also predicts that irrespective of the hype created around the halving event, there will not be a significant change as the world currently has a lot of other thing to worry about due to COVID-19 pandemic and most of the strong economies around the world are moving towards a recession.
Few statistics on bitcoin
- Total bitcoins in circulation – 18,368,150
- Total bitcoins ever to be produced – 21,000,000
- % of total bitcoins mined – 87.47%
- Remaining bitcoins to mine – 2,631,850
- Bitcoins to mine until next halving – 6,850
- Approx Bitcoin price – $9,888
Well we will know in few days. However these mix opinions have made the bitcoin investors around the world really nervous.
Cryptocurrency have become a hot topic with China’s initiative on launching a state digital currency “digital Yuan” as a pilot. This has drawn lot of attention to cryptocurrency. Also there are few other states in the world currently working on state digital currencies. It’s too early to say that crypto currency will be the next mode of money. However there is lot of possibilities to predict that it may have a future.
Will you bet on bitcoin?
Will you just stay back and watch?