If you are interested in bitcoin mining and trading, you must have come across the word ‘halving’. Bitcoin halving is different from buying and selling of bitcoin, it usually takes place every four years.
Let’s find out what bitcoin halving is and how it works.
What is Bitcoin Halving?
A bitcoin halving is an event that takes place every four years in which the reward for mining new blocks is halved. Thus, it means that the miners will get 50% fewer bitcoins for verifying transactions. It may seem like this is an injustice to the miners but stay put as you will later find out why it happens.
Bitcoin halving takes place after every 210,000 blocks until the maximum supply of bitcoins i.e., 21 million bitcoins are generated successfully. It is an important event for the traders because the number of new bitcoins generated by the company is reduced and has an important impact on the price of bitcoins.
With the limited number of coins available in the market, the price for coins likely rises if demand remains strong. It is mostly observed that the price of bitcoin rises rapidly after halving but different circumstances can lead to different output as well.
The Previous Bitcoin Halving
To understand the effects of bitcoin halving better, let’s take a look at the impacts of the last bitcoin halving. Bitcoin halving took place on 9 July 2016 and the reward fell from 25 new bitcoins per block to 12.5 bitcoins. The price of bitcoin jumped from $576 to $650 at the time of the event.
Although, you know that bitcoin is highly volatile still the price continued to rise till next year and reached a peak value of $2526 on 6 July 2017. Thus, people who have invested in platforms like the bitcoin optimizer robot, anxiously wait for the bitcoin halving event.
The Process of Halving
The whole working of bitcoin halving works on the principles of blockchain software that dictates how many bitcoins will be produced each year. The process of mining places an important role in this process because the software requires the computer to compete to verify transactions.
When they prove that the transactions which they have selected are valid then they get reward of several new bitcoins. The process of transactions verifications takes place in groups called blocks. The network is coded in such a way that it halves the reward received by miners every 210,000 blocks as mentioned above as well.
Effect on Miners
The effect on miners depends on the situation of bitcoins after halving. Some users may find that their mining activity is not profitable and will cause a loss in future. In other words, their input cost of electricity and hardware is more than what they earn. Some users would stop mining because the price of bitcoin does not rise enough to accommodate them. Thus, it reduces the amount of processing power in the network.
However, these circumstances for miners do not hinder the speed at which blocks are mined because the software can automatically adjust the difficulty of transaction verification to maintain a steady rate.
The Final Halving
As we know that the maximum supply of bitcoins is going to be 21 million so what will happen when all the bitcoins have been halved? Users will no longer receive new coins for verifying but they will continue to receive incentives to verify transactions.
Estimates predict that the last bitcoin mining will take place in 2140. At this point, bitcoin will become a deflationary currency which means that the coins can be lost due to human error.
There are various ways to earn money through Bitcoin, halving is one of them. However, it’s a different and unique way to earn Bitcoins. Many people wonder why bitcoin halving takes place. In simple terms, it takes place because of the design of the software.